Home ownership will be made easier for Australians with outstanding student debt after financial regulators promised to update their guidance on lending restrictions.
Regulators ASIC and APRA have agreed to clarify their guidance to lenders, along with reducing serviceability and reporting requirements in for HECS debts, at the request of Treasurer Jim Chalmers.
The "commonsense clarifications" would help more Australians into a home, Dr Chalmers said.
"People with a HELP (HECS) 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.
Banks had indicated they were unsure about how to interpret the existing requirements, which were holding them back from providing mortgages to some prospective borrowers with student loans.
APRA will tell banks they can exclude HECS repayments from serviceability assessments if they expect a borrower will shortly pay off their debt.
The prudential regulator will also ensure HECS is not treated as a debt for debt-to-income reporting purposes, recognising that the size of a person's HECS repayments depends on their income.
Meanwhile, ASIC will change its guidance on HECS debts, following consultation.
The treasurer also asked APRA to clarify a misconception that had limited housing supply by preventing developers from accessing finance for apartment projects.
That was apparently due to a misinterpretation of advice given by APRA in 2017, which some lenders misconstrued as preventing them from handing out loans to builders who had not yet pre-sold all properties in a development.
The regulator will tell the banks that, while it expects them to consider the extent of pre-sales as part of prudent credit risk management, it does not expect 100 per cent pre-sales for them to approve a loan.
"By unlocking more finance from the banks we’ll see more housing projects get off the ground more quickly," Dr Chalmers said.
A 2024 parliamentary inquiry into the barriers financial regulations posed to home ownership found the scales needed to be tipped in the favours of young Australians looking to buy their first home.
But it made no specific recommendations about easing lending restrictions for people with HECS debts.
The Australian Banking Association was sceptical that changing how HECS was treated in mortgage applications would significantly increase a customer's chance of getting a loan.
But NAB said they were open to considering alternative approaches to treating student loans, noting that because HECS is paid pre-tax and the bank assesses serviceability based on post-tax income, it was essentially a form of double counting.
