Federal Treasurer Jim Chalmers has directed both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to revise their approach to Higher Education Loan Program (HELP) debts when evaluating mortgage applications.
Under current responsible lending rules, lenders must assess student debt similarly to other debts like credit cards or personal loans, despite HELP repayments only being required when income exceeds certain thresholds.
“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,” Mr Chalmers said.
The changes aim to remove barriers for first-home buyers whose borrowing capacity is currently reduced by student debt obligations, even though these debts function differently from traditional loans.
ASIC has committed to quickly implementing changes to its guidance after consultation, while Treasury has confirmed that APRA will begin consultation on revising serviceability requirements and debt reporting related to HELP debts.
APRA acknowledged the unique nature of HELP debts in its statement on the matter, providing new guidance for Authorised Deposit-taking Institutions (ADIs).
“APRA expects an ADI to consider a borrower’s HELP debt obligations alongside other debt commitments when assessing their borrowing capacity,” APRA said.
“This is because HELP repayments are deducted from gross income and are not available to service a mortgage.”
However, the regulator has indicated more flexibility is appropriate given the nature of these education debts.
“APRA considers it is reasonable for ADIs to take into account the individual circumstances of the borrower and the nature of their HELP debts,” the regulator stated.
The updated guidance suggests lenders may consider removing HELP repayments from serviceability assessments in certain circumstances, particularly when a borrower is expected to pay off their HELP debt within 12 months.
“This loan serviceability override would be on the basis that the ADI considers the borrower will be largely unaffected by HELP repayments over the remaining term of their mortgage considering the near-term repayment of, and income-contingent nature of, outstanding HELP debt,” APRA said.
The regulator emphasised that financial institutions should maintain prudent frameworks for handling such exceptions, ensuring responsible lending practices remain in place.
Industry groups have welcomed the announcement, with the Mortgage and Finance Association of Australia (MFAA) noting that this issue has been a significant concern among mortgage brokers who have seen clients struggle to secure appropriate financing due to HELP debt considerations.
The Australian Banking Association (ABA) has also expressed support for the decision, recognising the potential positive impact on homeownership rates among younger Australians who often carry student debt.
