Banks given green light to ignore student debt for some home loans
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The news: The federal government has worked with financial regulators to stop student loan debt from being calculated as part of debt-to-income considerations.
The context: The Australian Prudential Regulation Authority (APRA) will be informing banks they can exclude HELP debt from serviceability assessments in situations where borrowers will be paying off their debt in the near-term.
Also, the debt-to-income definition will be changed to stop HELP from being considered debt for reporting, due to its income-contingent nature.
APRA has also been asked to clarify its guidance on finance for constructing apartment developments. Previous advice has been interpreted by lenders as requiring all new units being pre-sold and APRA will inform lenders it does not, in act, expect 100% pre-sales.
Treasurer Jim Chalmers said that he had written to APRA chair John Lonsdale and the Australian Securities and Investments Commission (ASIC) chair Joe Longo this month, and had conversations with both agencies. He noted he also spoke to the chief executives of major banks this week.
One of the issues for first-time buyers has been difficulties in securing a mortgage when they have student loan debt.
The cost of living is expected to be a dominant issue for the upcoming federal election. A large component of this is housing affordability, with both sides of the political spectrum facing criticism for not doing enough to help renters and first-time buyers.
The government has been largely focused on supply-side measures in its response to the affordability crisis.
What they said: Chalmers said the changes are “commonsense clarifications”.
“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,” he said in a statement.
“By unlocking more finance from the banks we’ll see more housing projects get off the ground more quickly.”
Housing Minister Clare O’Neil said it would give first-home buyers “more borrowing power to get into their own home, sooner”.
The source: Treasurer media release
