Major mortgage hurdle lowered for HECS debtors, making home ownership more realistic

People with student debt can now borrow more for a house as new government “guidance” filters through the banks.

Finance brokers say a couple earning a combined $140,000 should be able to borrow an extra $36,000.

“This is not the most exciting part,” Madd Loans founder George Samios said.

Mr Samios pointed to changes in the serviceability (buffer) rate as the key reform that would help people buy a home.

In February, Treasurer Jim Chalmers wrote to the financial and investment regulators, calling for them to reassess their advice to banks and lenders about HECS debt – to essentially take HECS debt out of the equation when someone applies for a mortgage if the debt is set to be paid off in “the near term”.

The first real changes have now washed through Commonwealth Bank; from Wednesday, the bank will not consider HECS debt if it is due to be repaid within 12 months.

If the debt holder has two to five years left to pay, the applicant’s mortgage serviceability buffer will be lowered from the standard and legislated 3 per cent.

A serviceability buffer forces banks to add 3 per cent to the advertised interest rate, ostensibly so the loan repayments can still be made if interest rates jump; but the extra 3 per cent locks many people out of getting a mortgage in the first place.

Finance Brokers Association of Australia managing director Peter White questions why the lower buffer only applies to student debtors.

However, Mr White acknowledges the serviceability test has been a significant hurdle for first-home buyers.

“While we understand that HECS is a debt and should be included in any loan assessment, the time left to repay the debt should be taken into consideration.

“Furthermore, the reduction in the serviceability buffer for those who have between one and five years left on their repayments will be a significant help and enable many to not only reach the threshold to get a loan but to secure a higher loan that may mean the difference between securing the property they seek or missing out,” Mr White said.

“The current 3 per cent mortgage serviceability buffer remains a key reason why thousands of Australians are unable to purchase a home or refinance, and we are talking about borrowers who can meet the repayments. We again call on the government to act on this.”

Australia’s biggest bank, Commonwealth Bank, will make getting a mortgage easier for student debt holders from Wednesday. Mr Samios got on the front foot on Tuesday, doing CommBank’s PR for them.

“If your HECS debt is due within the next five years, under the new CBA policy, your entire loan will be assessed at 2 per cent less than normal, and this makes an absolutely massive difference,” he said.

A couple with a combined income of $180,000 could borrow $840,000, but now if that couple had a HECS debt, they could borrow $1.02m, he said.

A Commonwealth Bank spokesperson has confirmed the bank is making the change.