What Do the New HELP (Hecs) Changes Mean for Buyers?

 Recent announcements from Treasurer Jim Chalmers and subsequent responses from financial regulators, including the Australian Prudential Regulation Authority (APRA), signal a significant shift in how Higher Education Loan Program (HELP) debts are treated in mortgage lending. 

 For prospective homebuyers, particularly young Australians burdened with HELP debt, these changes could mean easier and quicker access to homeownership.

How HELP (Hecs) debt affects homebuyers 

 A HELP debt differs from other forms of debt because repayments are calculated according to your income, rather than a fixed amount. This means borrowers start repaying their HELP debt with a portion of their income once they earn above a certain threshold, with repayments scaling up as income levels grow. 

 In the 2024-25 financial year, a borrower earning between $62,851 and $66,620 will have 2% of their income deducted by their employer to pay off their HELP debt. If a borrower earns more, say between $66,621 and $70,618, this repayment rate increases to 2.5%. 

 These repayments are typically withheld by your employer to cover your anticipated compulsory repayment to the Australian Taxation Office (ATO), and are made through your tax return.  

 When applying for a mortgage, a lender will perform a serviceability assessment to determine if you can comfortably afford mortgage repayments. These assessments calculate your debt-to-income (DTI) ratio and consider income, expenses and current debt obligations. 

 HELP repayments, typically being a compulsory deduction from your gross income, can affect your debt-to-income ratio, lowering the amount a lender is willing to offer. Essentially, by reducing the amount of money a person has available after compulsory deductions, it makes it appear that they are less able to pay back a loan and will therefore qualify for a smaller loan, or none at all.

Regulatory changes 

 Recognising this barrier, the federal government has pushed for HELP changes for buyers, with the Treasurer stating that lending rules should not disadvantage young homebuyers. 

 As a result, he requested that APRA clarify its treatment of HELP debts in serviceability requirements and debt reporting. The aim is to ensure individuals with HELP debts are assessed fairly, improving their chances of entering the housing market.

Regulators’ responses 

 APRA has launched a consultation process with its proposed HELP changes for buyers, including:

1. Removing HELP debt from DTI reporting: HELP payments would no longer be classified as traditional debt in these calculations, which could improve borrowing capacity for affected buyers.

2. Flexibility in serviceability assessments: APRA has proposed allowing lenders to exclude HELP repayments from serviceability assessments in cases where the borrower is expected to clear their debt within 12 months. This would provide some relief for borrowers on the verge of paying off their HELP loan.

3. Maintaining prudent lending: APRA has clarified that while these adjustments provide flexibility, lenders should continue considering HELP repayments in most serviceability assessments, particularly where the debt is likely to remain for an extended period.

 In addition to APRA, the financial services regulator, ASIC, has committed to updating its guidance on HELP debt treatment.  

 ASIC regulates non-banking financial institutions, which account for around 5% of lending for home loans, according to the Reserve Bank of Australia (RBA). However, between 2015 and 2023, mortgage lending by non-bank lenders grew at almost twice the rate recorded by banks. This makes ASIC’s commitment to revising its regulations particularly significant. 

 By updating its guidance on HELP debt treatment, ASIC ensures that non-bank lenders adopt a fairer approach to assessing borrowers with student debt.

Industry’s response 

 The Australian Banking Association (ABA) welcomed the government’s move, adding that clearer regulatory guidance will help banks make informed lending decisions. ABA CEO Anna Bligh said, “There is always merit in carefully considered updates to regulatory guidance that may help some Australians safely access more credit.” 

 The news was also met with a positive response by the Mortgage & Finance Association of Australia (MFAA), which represents over 15,000 mortgage brokers and other finance professionals. 

 “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,” said MFAA CEO Anja Pannek. 

 She added that the changes will remove arbitrary barriers and increase the opportunities for brokers to help clients into homes.

What the HELP changes mean for homebuyers 

For buyers, these changes could mean: 

1. Increased borrowing capacity: By potentially excluding HELP repayments from certain serviceability calculations, borrowers may be able to secure larger loans.

2. Faster path to homeownership: The increased flexibility for lenders could speed up the approval process for individuals with HELP debts, allowing them to purchase a home sooner.

3. Fairer assessment: Recognising the unique characteristics of HELP debt ensures that borrowers are assessed more equitably.

If you have a HELP debt and are wondering how these changes could impact your home loan application, Shore Financial can help. To discuss your scenario, call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.