It also calls for broader reform of mortgage serviceability rules
The Finance Brokers Association of Australia (FBAA) has welcomed recent changes by the Commonwealth Bank of Australia (CBA) to adjust the way student debt is factored into home loan applications, urging other lenders to follow suit.
CBA, the country’s biggest mortgage lender, announced it would no longer include Higher Education Loan Program (HELP) debts due to be paid off within 12 months in its home loan assessments. The bank will also lower the lending buffer applied to HELP debts due to be repaid within five years.
FBAA managing director Peter White (pictured above) said the changes reflect a more accurate picture of borrowers’ financial positions and would benefit many prospective homeowners.
“While we understand that HECS is a debt and should be included in any loan assessment, the time left to repay the debt should be taken into consideration,” White said.
The association also acknowledged the efforts of the federal government, particularly Treasurer Jim Chalmers, who earlier this year directed ASIC and APRA to review lending guidance related to HELP debts.
White said reducing the buffer for borrowers close to paying off their student loans would help many clear a key hurdle to homeownership.
“The reduction in the serviceability buffer for those who have between one and five years left on their repayments will be a significant help and enable many to not only reach the threshold to get a loan, but to secure a higher loan that may mean the difference between securing the property they seek, or missing out,” he said.
The FBAA has encouraged other banks to adopt similar policies, arguing that many borrowers who are otherwise financially capable are being held back from entering the property market.
The industry body has long argued that the standard 3% mortgage serviceability buffer is overly restrictive. It has called for regulators and lenders to reassess this setting, especially given the precedent set by CBA’s reduction for HELP debt.
“If a 1% serviceability buffer is viable for those with a HECS debt, why is a rate of 1.5% to 2% not viable for all borrowers?” White said. “We again call on the government to act on this.”
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