Rules may help some, but questions of efficacy mount
The Labor government has upended the home loan market with sweeping changes to how student debt will impact serviceability requirements for first-home buyers.
In a Wednesday statement titled ‘Commonsense changes to help more Australians into a home’, Treasurer Jim Chalmers (pictured) said he is working with the regulators to relax how HECS-HELP debts are treated under responsible lending rules.
Theoretically, this should make it easier for people with student loans to get their feet on the property ladder.
The Australian Securities & Investments Commission (ASIC) indicated that it will move to implement changes to its guidance on responsible lending laws.
Anja Pannek, chief executive of peak mortgage finance body MFAA, welcomed the changes.
“This announcement is one of the key recommendations we made to the inquiry (into homeownership. Our members were very vocal when we consulted with them that this was one of the key barriers for prospective homeowners,” she said.
“We surveyed our members and the message from them was clear – the rules governing HECS-HELP debt when it comes to home loans were prohibitive to first home buyers entering the market and needed to change.”
Pannek noted that 75% of all mortgages go through the broker channel, while nearly 80% of first home buyers entrust brokers to help them buy their first home.
But the changes may have less bite than they initially appear to have.
A niche change
There is some vagueness to the new rules – at the banks’ discretion, the rules will only apply if the first-home buyer is due to pay off their debt in the near term.
According to the Australian Taxation Office, the time taken to repay HELP debts is rising. At last count in the 2020-21 year, the average time repay was 9.4 years, up from 9.3 years the year before and up from 8.2 years in 2011-12.
How this squares with ‘near term’ is unclear.
Shane Oliver, chief economist and head of investment strategy at AMP Bank, told MPA: “I think some will benefit and so be able to get a mortgage faster but the impact will be marginal and mainly apply where the HECS debt is expected to be paid down soon.”
Oliver questioned the government’s intentions with the announcement. “There is also the problem that while such demand-side schemes are popular – which is why the government is doing it – they mainly serve to inflate prices because the basic problem is a lack of supply of housing.
“So it’s maybe good for those who can get it early but for everyone else it just means slightly higher prices!” he said.
Anna Bligh, head of the Australian Banking Association, questioned the scope of the changes, telling ABC: "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.”
While even shadow minister for home ownership Andrew Bragg conceded that the Labor-brokered policy was a “sensible” one, he called it “a very niche change overall”.
The LNP is pushing for more significant changes to lending policies, such as a reassessment of the 3% serviceability buffer.
This APRA-set buffer stipulates that mortgagors must be able to service their loan three percentage points above the actual loan rate they are taking out. It has undoubtedly been effective in keeping default rates down, but calls to lower the buffer, or remove it entirely, are growing.
"The current three 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," Peter White from the Finance Brokers Association of Australia (FBAA) said this week.
"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.”
Importance of brokers
Mortgage aggregator AFG's chief executive David Bailey welcomed the change and stressed the importance of brokers in understanding the rule changes.
He told MPA: “The proposed change to the rules around the treatment of HECS debt for loan assessment is welcome news. This announcement is a step in the right direction as it is a very different type of debt to others and should be treated accordingly.
"The importance of having a broker onside is once again in sharp focus as this change will need to be understood and handled appropriately."
Article updated at 2.30pm AEDT with input from David Bailey.
