Great news for the three million Australians with student debt! New rules are being considered that could soon boost their borrowing power when applying for a home loan.
Investing in your education can be a smart move, potentially leading to higher income over your career. However, many face the downside of lingering student debt, which can impact their ability to buy a home.
HECS/HELP debt and home-buying:
- Around 3 million Australians have an outstanding HECS/HELP balance.
- HECS/HELP debts are indexed annually (typically upwards) in line with inflation or wages growth, but they don’t attract interest.
- Repayments only start when graduates earn over $54,435 a year (2024-25 threshold), with a starting repayment rate of just 1% annually.
Challenges:
- University fees and the indexation rate have increased in recent years, pushing up the average HECS/HELP debt.
- This affects the borrowing power of many young graduates trying to enter a booming property market.
- Currently, banks consider HECS/HELP debt similar to other debts when deciding loan amounts.
Potential changes:
- Federal Treasurer Jim Chalmers has called on the Australian Prudential Regulation Authority (APRA) to update its guidance to banks, making it easier for those with HECS/HELP debt to get home loans by removing these debts from debt-to-income reporting.
- Chalmers believes this would be a “commonsense” change, ensuring fair treatment for those with HECS/HELP debt.
- The Australian Banking Association supports this move, seeing it as a way to help more prospective home buyers achieve their dream of home ownership.
What it means for you:
- Having a HECS/HELP debt shouldn’t discourage you from exploring home loan options.
- Get in touch to find out your borrowing power and see if you’re home loan-ready today.
We’ll keep you updated on any changes that could increase your home loan borrowing power!