Big news for first-home buyers with student debt! The government is making changes to how HECS-HELP loans are assessed when applying for a mortgage, potentially opening doors for thousands of Australians looking to buy their first home.

Student Debt Taking Longer to Repay

Nearly 3 million Australians had a HELP debt in the 2023–24 financial year, according to the Australian Tax Office, and the time it takes to repay these loans is increasing.

In 2023–24, the average repayment period for student debt was just under 10 years—up from 7.3 years in 2005–06.

Currently, around 501,000 Australians have a student debt between $20,000 and $30,000, while another 380,000 owe up to $40,000. A smaller group—about 39,000 people—carry debts as high as $90,000.

For many borrowers, perceptions of HECS-HELP as “good debt” are shifting.

What’s Changing in Home Loan Rules?

Federal Treasurer Jim Chalmers has directed the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to revise their guidance on how lenders treat student debt in mortgage applications.

Currently, HECS-HELP debt is considered the same as credit card or personal loan debt when lenders assess your borrowing capacity.

This significantly reduces serviceability for borrowers, making it harder to qualify for a home loan—even though HECS repayments are income-contingent and don’t need to be repaid if earnings fall below a threshold.

Under the proposed changes, lenders will discount student debt from mortgage serviceability tests if the borrower is expected to repay the debt in the “near term.”

However, the definition of “near term” is still under consultation between regulators, lenders, and other stakeholders.

Why This Matters for First-Home Buyers

The average HECS-HELP debt is around $26,500 and typically takes over nine years to pay off.

Despite recent shifts in the property market, mortgage affordability remains a key concern. According to Compare the Market, the average home loan has increased slightly to $642,000 since November.

Many mortgage brokers and industry experts have long argued that treating student debt like commercial loans is an unnecessary hurdle for first-home buyers.

By updating the rules, the government hopes to increase borrowing capacity and allow more Australians to enter the property market sooner.

How much more could you borrow?

Under the new HECS-HELP assessment changes:

• A borrower earning $75,000 could see their borrowing capacity rise by $26,800, bringing their total to $408,500.
• A single professional earning $100,000 could access over $56,000 in additional borrowing power.
• A university or TAFE-educated worker earning $125,000 could now borrow up to $679,000—an increase of $95,000.

These figures assume a single applicant with no dependents, applying for an owner-occupied, principal and interest loan of approximately $641,000 while carrying an average HECS-HELP debt.

These figures assume a single applicant with no dependents, looking for an owner-occupied home loan with an average HECS-HELP debt of around $26,500.

National Australia Bank’s home ownership executive, Andy Kerr, told NewsWire that these changes will make homeownership more attainable for many Australians.

“This update will help more young Australians turn their homeownership dreams into reality,” he said.

Industry Response to Home Loan Changes

The Mortgage and Finance Association of Australia (MFAA) and the Australian Banking Association (ABA) have welcomed the decision, stating it will help unlock more credit for home buyers.

MFAA CEO Anja Pannek highlighted that brokers have consistently identified HECS-HELP treatment as a key barrier for first-home buyers. 

“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.

“In reflecting our members’ views, our submission called on the government to adjust the way in which student loans debt was treated for first home buyers.”

Compare the Market spokesman Chris Ford pointed out that the extra borrowing power could allow buyers to purchase a larger home, move to a better suburb, or upgrade from an apartment to a house.

However, not everyone is convinced. Some industry experts, like Matt Turner from GSC Finance Solutions, warn that making it easier to borrow without addressing housing supply could further drive up property prices.

What’s Next?

APRA and ASIC will begin consultations to implement these changes quickly, ensuring updated guidance for lenders in the coming months. 

If you’ve been struggling to secure a loan due to your HECS-HELP debt, now could be a great time to explore your options.

At Loan Nerds, we stay on top of policy changes to help you get the best mortgage deal. If you have questions about how these changes affect you, reach out to our team today!

FAQs

1. How do the new home loan rules affect first-home buyers with HECS-HELP debt?

The changes mean lenders may discount HECS-HELP debt from mortgage serviceability tests if the borrower is expected to repay the debt in the near term. This could increase borrowing capacity and make it easier to qualify for a home loan.

2. Will my HECS-HELP debt still impact my ability to get a home loan?

Yes, but under the new guidelines, lenders may assess HECS-HELP debt differently, potentially reducing its impact on your borrowing power. The exact details are still being finalized.

3. How much more can I borrow under the new rules?

It depends on your income and financial situation. For example, someone earning $75,000 could see their borrowing capacity increase by approximately $26,800, while a borrower earning $125,000 may qualify for an extra $95,000.

4. When will these home loan changes take effect?

APRA and ASIC are currently consulting on the changes, and updated guidance for lenders is expected in the coming months.