The government has directed banks to relax lending rules for some student debt holders. (ABC News: Keana Naughton)
In short:
New rules allowing banks to disregard serviceability of a student debt when considering a home loan will not apply to all.
The Australian Banking Association boss says banks will likely only do so for people who can pay off their loan within a year.
What's next?
Some industry figures have called for a 3 per cent serviceability buffer to be slashed to further help people into homes.
In the past five years, three different mortgage brokers have told Dylan Busst that his student debt will make it very difficult for him to get a mortgage for his first home.
The 30-year-old physiotherapist from Canberra has spent years madly saving for a deposit.
But after studying for two university degrees, his $80,000 HECS-HELP debt has earned him a warning from lenders.
"They say that it does significantly affect my borrowing capacity," Mr Busst said.
"It's not the size of the HECS debt that matters … but rather how long it will take to cut down that HECS debt."
Canberra physiotherapist Dylan Busst says his borrowing capacity has been hurt by his student debt. (Supplied)
He's now faced with a dilemma: does he pay off his HECS debt leaving little left over for a deposit? Or does he keep saving for a deposit and risk dramatically reducing his borrowing power?
"It really can be a gamble, and it's hard for me to put my head down and work out which way is better," Mr Busst said.
"It's one of those situations where my savings increase, but the longer I leave it, potentially the worse the interest becomes or the harder it is to put that money towards [a house]."
New direction to help homebuyers
The federal government is hoping to help people faced with that dilemma through a new direction to banks given on Wednesday.
Financial institutions will soon be able to disregard HECS-HELP repayments when assessing an applicant's ability to service their mortgage, under updated lending rules from financial regulators APRA and ASIC.
It was one of 47 recommendations from the Universities Accord, which urged banks to recognise that HELP loans were not like other types of loans, and should not unduly punish would-be home-owners.
Banks to be allowed to overlook student loans in home loans
Photo shows The logos of the four big banks in Australia
But the new guidelines will only apply if a person is due to pay off their debt "in the near term", a caveat that will be at the banks' discretion.
The head of the Australian Banking Association, Anna Bligh, signalled that the new guidelines would realistically only apply to people who could be pay off their loan within a year.
"They don't want to get young people into debt that they can't afford," she told ABC Radio Sydney.
"But if, for example, your student debt was going to be paid off some time in the next 12 months and you're looking at taking out a housing loan over 30 years, then banks could make a judgement.
"I think it's important to understand that this will not mean that every single person who has a HECS debt will suddenly get a housing loan.
Shadow Assistant Minister for Home Ownership Andrew Bragg questioned how helpful the change would be.
"This is a very small change that may allow some people to borrow a little bit more, but it's a very niche change overall," Senator Bragg told Sky News.
"It's not looking at the way that APRA, the regulator, actually makes its laws and its rules around mortgages. It doesn't look at lenders' mortgage insurance, it doesn't look at the capital risk rates, it doesn't look at the buffer.
"But it is a sensible idea."
Average person takes 10 years to pay off student debt
Nearly 3 million Australians had a HELP debt in the 2023-24 financial year, according to the Australian Tax Office.
And the data shows it is taking longer for recipients to pay it off.
In 2023-24, the average time to repay a student debt in full was just under 10 years, up from 7.3 years in 2005-06.
Around 501,000 people had a debt of between $20,000 and $30,000, another 380,000 owed up to $40,000, while 39,000 people owed up to $90,000.
Mr Busst said his impression of his HECS-HELP debt as a "good debt" has changed.
"When I first started university back in 2013, interest rates were at record lows, so the idea of HECS being a big factor was pretty limited," he said.
"But it's only been in recent years, having gone into the workforce, that I've really experienced the fact that this is making a big, significant difference."
Call to slash borrowing buffer
The government says it will undergo a short period of consultation with stakeholders about the new changes.
"More details need to be known around how the "near term" will be evaluated," said Peter White from the Finance Brokers Association of Australia (FBAA).
But he said there were better ways to help people secure a loan, by removing a buffer of 3 per cent that is built on top of any liabilities an applicant might have.
"The current 3 per cent mortgage serviceability buffer is one of the largest obstacles in the assessment process and is preventing thousands of Australians from purchasing a home and forcing thousands more to remain in 'mortgage prison' unable to refinance," he said.
"While this was appropriate when interest rates were at an all-time low it is no longer necessary."
"The current high buffer rate is also preventing first home buyers from securing a home in the middle of a housing crisis, putting more pressure onto the rental market," he said.
Master Builders Australia has welcomed the changes, which will also include an update to lending rules for housing developers to clarify that a block of units does not need to be fully sold off the plan to qualify for a loan.
"We have heard from our members about the difficulty in accessing finance from banks without significant pre-sale of dwellings which is unsustainable in the current economic environment and is driving investment out of the industry," CEO Denita Wawn said.