Commonwealth Bank (CBA) has announced a major shake-up in how Higher Education Contribution Scheme (HECS) debts impact mortgage applications, giving hope to thousands of uni graduates looking to crack into the property market.
From Wednesday, CBA will no longer count HECS debt when assessing mortgage applications if the debt is due to be repaid within 12 months. For those with two to five years remaining on their student loans, the bank will apply a reduced serviceability (buffer) rate, making it easier to secure housing finance.
The shift follows Treasurer Jim Chalmers’ February directive to financial regulators, urging them to reconsider how HECS debts factor into mortgage assessments.
Currently, banks must apply a 3% serviceability buffer on top of the advertised interest rate when assessing loan applications. This requirement, designed to ensure borrowers can manage repayments if rates increase, has kept many graduates from entering the property market despite having sufficient income. Finance brokers reckon the changes will have a massive impact for first-home buyers.
According to news.com.au, a couple earning $140,000 combined could now borrow an extra $36,000 under the new rules. For higher income earners on $180,000, the borrowing capacity could jump by a whopping $180,000, from $840,000 to $1.02 million.
Peter White, managing director of the Finance Brokers Association of Australia, welcomed the change but questioned why the lower buffer only applies to those with student debt.
“The current 3% 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,” White said.
CBA’s executive general manager home buying, Dr Michael Baumann, confirmed the policy change, saying the bank is “committed to helping all Australians, including those with a HELP debt, in their home-buying journey.”
“Following APRA’s recent statement regarding HELP debt, we have introduced alternative home loan servicing methods for customers who can repay their HELP debt within five years. This will allow eligible customers to achieve their home ownership goals sooner,” he said.
Industry observers expect other major banks to follow CBA’s lead in the coming weeks, potentially opening the housing market to thousands of young Australians.
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