Student HELP debt scrapped from home loan applications – but will it hurt first homebuyers?
You can now wipe any mention of your HELP student debt from your mortgage application – but one expert argues it's not going to help first homebuyers get into the market.
Federal treasurer Jim Chalmers has announced "commonsense changes" to the way banks assess your home loan application, giving you the freedom to remove any mention of your HELP student debt from your file.
"Currently, a barrier for young Australians to get into the housing market is the reluctance of banks to give them a mortgage," Chalmers announced.
"Financial regulators will update their guidance to make it easier for Australians with a HELP debt to responsibly take out a mortgage and buy a home, and also unlock the construction of more units."
The move is designed to "help more Australians into a home", Chalmers says, but one expert argues it could have the opposite effect.
Borrowing more than you can afford to repay
Matt Turner, Managing Broker at GSC Finance, says that while he can see why borrowers will welcome this policy change, he's also mindful of the risks.
"From the point of view of the borrower it will give them a higher loan affordability. However, assessing their ability to repay [and] ignoring the deduction for the HELP repayment means they're potentially borrowing outside of their means," he explains.
"I back brokers to lend responsibly and have the right conversations with clients about the risks of over-leveraging, but those [homebuyers] who go to a bank branch or DIY online, could potentially access more than they can afford."
This could put them in a position where they've borrowed more than they can afford to repay, because HELP repayments were not factored into their servicing calculations.
Buying a home? Work out how much you can afford to borrow
"It will increase housing prices"
The other consequence to this policy is that it doesn't address the fundamental issue causing Australia's housing crisis – a decades-long backlog in creating supply.
"The problem is supply and cost of housing, not accessing credit," Matt warns.
"This policy will increase housing prices, as borrowers will have access to more credit hence they'll be able to spend more. This lifts demand, without any meaningful changes to the supply side of the housing equation.
"Whilst short-term, the government says it will make it easier for buyers, ultimately it will make housing more expensive and borrowers will be at greater risk as their debt to income ratios increase."
When do these changes take effect?
We don't yet know exactly when you can start removing all evidence of your HELP debt on your application, but we do know that:
- APRA has confirmed it will start consultation soon on the treatment of HELP debts in serviceability requirements and debt reporting.
- ASIC has confirmed it will "move to quickly implement changes to its guidance on the treatment of HELP debts", following targeted consultation.
In other words: if you're buying a home at the moment, you'll need to include details of your student debts on your loan application. But that could all change in the coming days and weeks, so stay tuned.
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