Recent changes proposed by Treasurer Jim Chalmers regarding the treatment of student debt during loan assessments have raised eyebrows within the mortgage broking industry. These adjustments, which aim to potentially ease the financial burden on certain borrowers, could have a notable effect on first-home buyers.
According to MPA Magazine, the proposed policy changes are already stirring mixed reactions among industry professionals. While some see the potential benefits for those struggling with student debt, others question whether these shifts will have the desired impact on the broader housing market.
What the Changes Entail
Under the proposed changes, banks will be allowed to exclude existing student debt from their serviceability calculations in certain circumstances. This would theoretically increase the borrowing capacity for individuals with student loans, a move that has the potential to benefit first-home buyers most.
While the proposal has generated excitement among some, particularly brokers and first-home buyers, others remain skeptical. Critics argue that the change will primarily benefit those nearing the end of their HECS-HELP repayment period.
Some view the move as a strategic tactic to appeal to voters ahead of upcoming elections.
A recent poll conducted during a Mortgage and Finance Association of Australia (MFAA) webinar revealed that 48% of brokers believe the changes will have a “significant” effect on their clients.
Naveen Ahluwalia, the executive from the MFAA, emphasized that the issue is “really important to brokers”, particularly as nearly 80% of first-home buyers rely on brokers to secure a loan.
Elise Ivory’s Perspective on Student Debt and Serviceability
Elise Ivory, a mortgage finance expert at Dentons law firm, expressed her personal view that the changes are particularly beneficial for first-home buyers.
My personal view is that it is very helpful for first-home buyers in particular… I know that student debt can be a big stress for some people, so therefore understanding its effect on their credit is a good thing – said Ivory.
Ivory also explained that the Australian Prudential Regulation Authority (APRA) has acknowledged that it is generally appropriate for banks to include HELP repayments in serviceability assessments, as this helps banks ensure they are meeting responsible lending obligations.
However, she noted that HELP debts are unique because repayments are income-driven rather than tied to the debt amount.
APRA has conceded that this is generally appropriate because the inclusion of HELP repayments in serviceability assessments helps that bank determine whether they’re meeting responsible lending obligations – Said Ivory
She further remarked that these changes
Should help borrowers who do have the debt… to obtain loans.
Regulatory Stance on Student Debt
Both APRA and the Australian Securities and Investments Commission (ASIC) have endorsed a more flexible approach to assessing student debt. They recognize that student loans differ significantly from other types of debt, with repayment obligations based on income rather than the size of the debt itself.
APRA has proposed two targeted adjustments: first, removing HELP debt from the debt-to-income ratio calculations; and second, clarifying when it is reasonable for banks to exclude HELP debt from serviceability assessments—primarily when the debt is expected to be cleared within 12 months.
The Impact of the Serviceability Buffer
The student debt policy changes also tie into broader discussions about the serviceability buffer used by banks. Introduced in 2021, the 3% buffer ensures that borrowers can manage their loans even if interest rates rise.
However, critics argue that the buffer, in combination with other policies, is pushing many potential buyers out of the market.
Nowadays in this current lending climate that policy means that clients have to service their loan at rates of 9-9.5% with the buffers added on top, this drives a lot of people out of the market and forces them to rent for longer, which adds more inflationary pressure,
Said Mario Reyad, director and lending specialist at NSW-based Expert Mortgages. Reyad further added,
A more dynamic approach to calculating serviceability is required to match current conditions. Policies like these need to be reviewed to ensure every Australian has the opportunity to own a place they call home in Australia.
Grace Taylor, director at Queensland-based Taylored Finance Co., agreed that reducing the buffer would foster a more favorable lending environment, stating that it would
Enable clients to secure better financial positions.
As the situation continues to evolve, brokers, lenders, and policymakers will closely monitor these shifts, assessing their potential effects on Australia’s housing market and its future homeowners.
