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NAB Eases Borrowing Criteria for HECS-HELP Debt Holders
The National Australia Bank (NAB) is set to alter its borrowing assessment criteria regarding HECS-HELP debts, aligning itself with Commonwealth Bank’s recent changes. This move follows a federal government initiative aimed at facilitating access to home loans for Australians burdened with student debt.
New Lending Rules
Effective from 31 July, NAB will no longer factor in HECS-HELP debts of $20,000 or lower when determining an individual’s borrowing capacity for home loans. This significant amendment is expected to enhance the borrowing potential for many Australians currently managing their student debt.
Matt Dawson, NAB’s executive for home ownership, highlighted that this shift allows a broader demographic to enter the property market sooner. He stated, “For too long, HELP debt has been a roadblock for many Australians looking to buy a home.” Dawson believes that the new regulations will enable more individuals to access home ownership more rapidly.
Context of the Changes
This change by NAB follows in the footsteps of Commonwealth Bank, which was the first major bank to ease restrictions related to HECS debts in April of this year. Commonwealth Bank no longer includes HECS debts in its serviceability assessments for those debts scheduled for repayment within 12 months. Furthermore, it is piloting a scheme to reduce the serviceability buffer for borrowers with HECS debts from 3% to 1% for those indebted with repayment terms of five years or less.
The serviceability buffer, set by the Australian Prudential Regulation Authority (APRA), currently remains at 3%, which requires borrowers to demonstrate they can repay loans at rates 3% above the current interest levels. For instance, where an interest rate is at 6%, borrowers must show the ability to repay at 9%.
Impact of HECS-HELP on Borrowing Power
Lenders have historically considered HECS-HELP debt when evaluating a borrower’s financial capacity. NAB has previously demonstrated how HECS-HELP debts could reduce borrowing potential. A case presented during a Senate inquiry detailed how a borrower earning $125,000 with an average HECS-HELP debt of $26,500 and additional expenses might experience a borrowing limit of $497,000. By excluding the HECS-HELP debt from calculations, this limit could rise to $587,000, providing an increase of $90,000 in potential borrowing power.
Government Measures for HECS Debt Relief
In related developments, the federal government introduced legislation to reduce all HECS HELP debts by 20%, fulfilling a significant election promise. This reform is expected to affect approximately 3 million Australians, meaning that those with an average HECS debt of $27,600 could see their obligations decrease by $5,520.
This debt reduction will be retroactive to 1 June, aligning with the recent indexation changes. Additionally, the government plans to raise the income threshold at which repayments commence from $54,435 to $67,000 while also reducing minimum repayment amounts.
Conclusion
The modifications to NAB’s lending practices signify a pivotal shift for many Australians with student debts, offering increased opportunities for home ownership. By aligning with governmental initiatives aimed at easing financial pressures on graduates, NAB is making strides in promoting accessibility and financial inclusivity in the housing market. As these changes take effect, prospective home buyers may find themselves in a more favourable position to secure loans and achieve their aspirations for property ownership.
