Major changes to HECS home loan rules

In a statement released on Wednesday (12 February), Chalmers confirmed he had instructed both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to update their guidance regarding the way Higher Education Loan Program (HELP) debts are treated by lenders.

Currently, responsible lending rules require lenders to assess student debt in the same way as they would any other debt, such as credit card debt or a personal loan.

This is despite the student debt not needing to be repaid if the holder is unemployed or making less than $54,435 in 2024–25 or $67,000 in 2025–26.

However, brokers have frequently argued that this interpretation has created another barrier for first home buyers as the debt drastically reduces serviceability.

Speaking on Wednesday, Chalmers said: “People with a HELP debt should be treated fairly when they want to buy a house, and we’re working with the regulators to make sure they are.

“By unlocking more finance from the banks, we’ll see more housing projects get off the ground more quickly.”

According to the Treasury, APRA will start consultation on the treatment of HELP debts in serviceability requirements and debt reporting.

ASIC has also confirmed it will move quickly to implement changes to guidance on the treatment of HELP debts after consultation.

“We’re tackling this housing challenge from every possible angle,” Chalmers said.

“These are commonsense changes that will help more Australians into a home.”

Industry reacts

The Mortgage and Finance Association of Australia (MFAA) welcomed the Treasurer’s statement.

MFAA CEO Anja Pannek noted that adjusting or waiving HECS debt for first home buyers in serviceability assessments had been one of the recommendations in its submission to last year’s Senate inquiry into the financial regulatory framework and home ownership.

“Our members were very vocal when we consulted with them that this was one of the key barriers for prospective home owners,” Pannek said.

“Our members are at the coalface working with their clients every day and helping them. We all know 75 per cent of all mortgages go through brokers; however, importantly also, nearly 80 per cent of first home buyers turn to brokers for help to buy their first home.

“We surveyed our members, and the message from them was clear – the rules governing HECS-HELP debt when it comes to home loans were prohibitive to first home buyers entering the market and needed to change.

“In reflecting our members’ views, our submission called on the government to adjust the way in which student loans debt was treated for first home buyers.”

The Australian Banking Association (ABA) CEO Anna Bligh also welcomed the decision as a way to unlock more credit for prospective home buyers.

“Banks support responsible lending rules to protect borrowers and ensure they can repay their loans. However, there is always merit in carefully considered updates to regulatory guidance that may help some Australians safely access more credit,” Bligh said.

“Whilst the challenges of reducing barriers to home ownership won’t be solved by one single factor, these clarifications should assist in unlocking more credit for some of those looking to enter the property market.”

However, Matt Turner, managing broker at GSC Finance Solutions, questioned the measures’ effectiveness.

“There is a big focus on giving access to more credit as a solution to the housing crisis which only pushes up prices,” Turner said.

“By removing HELP from the servicing calculation, we are not factoring in a real cost the client has in their budget as well, so there are questions as to whether that, in itself, is responsible.

“I really want to see something that helps on the supply side, rather than further fuelling demand for housing and credit growth.”

Unlocking more units

In his statement, the federal Treasurer also confirmed he had requested the regulators clarify guidance to help “unlock the construction of more units”.

Chalmers said some lenders had interpreted APRA advice issued in 2017 – that finance for construction of new units depends on a property being pre-sold – has become a barrier to financing.

“The interpretation of this guidance as ‘100 per cent presales’ by some lenders has limited housing supply, as smaller developers often don’t have the capital to finance the start of construction without support from the banks,” Chalmers said.

“APRA has confirmed it will communicate to banks that while it expects banks to consider the extent of presales as part of prudent credit risk management, APRA does not expect 100 per cent presales.

“ASIC has confirmed it will move to quickly implement changes to its guidance on responsible lending laws.”

Westpac CEO Anthony Miller commented on the move, saying that “long-term and chronic structural obstacles” have made the cost and risk of building new homes “unattractive for many builders and developers”.

“The clarification on presale requirements will offer greater certainty to move quickly on developments and construction, while changing the treatment of HELP loans in serviceability assessments will assist aspiring home buyers,” Miller said.

Property Council CEO Mike Zorbas also commented on the measures.

“This is the right balance for regulators and the government to strike,” Zorbas said.

“Many Australians need more apartment living options around jobs, opportunities and transport.

“Australian apartment construction is half the volume it was in 2017–2018.

“Just as access to a mortgage shouldn’t be the domain of only the super wealthy, overly restrictive lending regulations shouldn’t hamper the ability to supply new homes when we need them most.”

[Related links: MFAA sets out 8 recommendations to Senate home ownership inquiry]