HECS debt no longer a dealbreaker, says CBA
The Commonwealth Bank (CBA) has introduced changes to its credit policies that could increase the borrowing power of many Australians with HECS-HELP debt.
The move comes after Treasurer Jim Chalmers announced he had requested the banking regulator, APRA, to reassess how lenders view HECS-HELP debt in relation to borrowing capacity.
Currently, student debt is included in a loan applicant’s overall debt obligations when a lender is assessing your financial situation. This can reduce how much you can borrow.
For example, a single person earning $100,000 with a HECS-HELP debt could see their borrowing capacity drop by around $85,000 when applying for an owner-occupier loan. This could mean the difference between qualifying for a property that suits your needs or being forced to look at less desirable or smaller options.
It could be even greater if you were earning rental income, as some lenders calculate HECS repayments based on your total income.
In response to Treasury’s request, both APRA and the financial services regulator, ASIC, said they would be consulting with lenders on the changes. While APRA said at the time it had no explicit regulations about student debt, it said it was common practice for lenders to include this kind of debt in their serviceability assessments.
APRA is currently consulting with lenders on the changes to formalise new regulations. But in the meantime, CBA has made the move to adjust its own lending policies.
CBA’s new lending policy
Under CBA’s new approach, eligible applicants who can show they’re able to repay their HECS debt within five years may benefit from a more generous assessment. If you qualify, CBA may either disregard the HECS debt entirely or apply a lower buffer rate of 1 percentage point (instead of the standard 3 percentage points) when calculating borrowing capacity.
This buffer is an interest rate increase cushion that lenders apply to assess if borrowers could still meet repayments if rates increased. A reduced buffer translates to a higher maximum loan amount the borrower can potentially secure, making homeownership more attainable.
Your mortgage broker can help determine if you’re eligible using a dedicated calculator.
This change could significantly improve access to the property market for younger borrowers and professionals with strong incomes but existing education debt. It allows you to compete more fairly with other buyers and secure finance for homes that may have previously been out of reach under traditional lending rules.
Wondering if you could borrow more under the new CBA rules? As an award-winning mortgage broker in Sydney with over 390 five-star Google reviews, Eventus Financial can help assess your eligibility. Schedule a no-obligation consultation with Alex to get started.