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Australia’s largest lender has confirmed changes to its treatment of student debt.
Following new guidance from the financial services regulator, the Commonwealth Bank of Australia (CBA) has confirmed it is rolling out new assessment criteria for its treatment of student debt, effective from today (9 April).
Under the new assessment criteria, CBA will exclude Higher Education Loan Program (HELP) debt from home loan servicing calculations for borrowers who can repay their HELP debt within 12 months.
For borrowers who are able to repay HELP debt between one and five years, CBA is also piloting assessing home loan serviceability with a lower assessment rate buffer of 1 per cent.
Dr Michael Baumann, CBA executive general manager home buying, commented on the change to its lending policy, saying: “At CommBank, we are committed to helping all Australians, including those with a HELP debt, in their home-buying journey, by providing a range of flexible lending policies, competitive rates, innovative tools, and expert guidance.
“We regularly review and monitor our home loan policies and processes to meet customers’ needs while upholding prudent lending standards.
“Following APRA’s recent statement regarding HELP debt, we have introduced alternative home loan servicing methods for customers who can repay their HELP debt within five years. This will allow eligible customers to achieve their home ownership goals sooner.”
Industry reacts
Peter White AM, managing director of the Finance Brokers Association of Australia (FBAA), welcomed the decision, saying that while HECS should be included in any loan assessment, “the time left to repay the debt should be taken into consideration”.
“The reduction in the serviceability buffer for those who have between one and five years left on their repayments will be a significant help and enable many to not only reach the threshold to get a loan, but to secure a higher loan that may mean the difference between securing the property they seek, or missing out,” White said.
“We urge other banks to do the same so that even more people who can afford a loan, can enter the market and increase their personal wealth.”
Meanwhile, George Samios, founder of Queensland-based brokerage Madd Loans, said the changes could help thousands of potential borrowers with student debt enter the market.
“I expect other banks will follow,” he said.
“This allows thousands of people who previously could not borrow due to their HECS debt to enter the property market.”
Spotlight on serviceability
Student debt shifted into the spotlight earlier this year when federal Treasurer Jim Chalmers said he had instructed the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to update their guidance regarding the way student debts are treated in serviceability assessments.
At the time, 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.”
At the end of February, APRA began consulting on proposed changes off the back of the announcement.
By March, ASIC had confirmed it had updated its student debt guidelines, saying lenders can be more flexible with their assessment of student debt compared to other consumer debts.
However, segments of the broking industry have questioned the efficacy of any moves to adjust the serviceability buffer.
Reacting to Chalmers’ initial announcement, Matt Turner, managing broker at GSC Finance Solutions, said increasing credit access as a solution could only serve to push house prices up.
“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,” Turner said.
“I really want to see something that helps on the supply side, rather than further fuelling demand for housing and credit growth.”
[Related: Major changes to HECS home loan rules]
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