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NAB Eases Borrowing Rules for Those with HECS-HELP Debt
The National Australia Bank (NAB) has announced a significant change in its lending policies, joining the Commonwealth Bank in relaxing how it assesses borrowing power for individuals with HECS-HELP debts. This move comes in response to requests from the federal government aimed at making home ownership more accessible for Australians burdened by student loans.
Effective from July 31, NAB will no longer consider HECS-HELP debts of $20,000 or lower when evaluating applicants’ borrowing capacity for home loans. This alteration is expected to enhance the financial prospects for many Australians with student debt, allowing them to increase their borrowing potential.
Positive Changes for Home Buyers
Matt Dawson, NAB’s Executive for Home Ownership, remarked that this adjustment will help individuals achieve their goal of home ownership more quickly. He stated, “For too long, HELP debt has been a roadblock for many Australians looking to buy a home.” With this new policy, customers will have the opportunity to enter the housing market sooner without being weighed down by their student debts.
Earlier this year, the Commonwealth Bank took the lead among major banks by relaxing its policies concerning student loans. They no longer factor in HECS debts in serviceability assessments if repayment of the debt is expected within the next year. Additionally, for borrowers whose HECS-HELP debts are scheduled to be cleared within five years, they’ve initiated a trial that reduces the serviceability buffer from 3% to 1%.
Understanding the Serviceability Buffer
The serviceability buffer, mandated by the Australian Prudential Regulation Authority (APRA), typically requires lenders to assess repayment ability based on a rate that is 3% higher than the current interest levels. For instance, if a mortgage has a 6% interest rate, banks evaluate the borrowers’ capacity to repay at 9%. This buffer was raised in October 2021 to safeguard borrowers during low-interest periods.
Historically, HECS-HELP debt has been a stumbling block for many seeking loans. NAB provided an illustrative scenario where a person earning $125,000 with average expenses and a HECS debt of $26,500 would have a borrowing limit of $497,000 under existing criteria. Removing the HECS-HELP debt from these calculations would elevate that limit to approximately $587,000, offering potential borrowers an increase of $90,000 in borrowing capacity.
Government’s Commitment to Debt Reduction
In tandem with changes in banking policies, the Australian government has introduced a bill aimed at reducing all HECS-HELP debts by 20%. This initiative, fulfilling a key election promise, will affect around three million Australians. For someone carrying an average HECS debt of $27,600, this reduction translates to a debt decrease of about $5,520, retroactively applied from June 1 before this year’s indexation.
The legislation will also raise the repayment threshold from $54,435 to $67,000 and lower the minimum repayment amounts, further relieving financial pressure on graduates entering the job market.
Through these combined efforts by financial institutions and the government, many are hopeful that more Australians will soon find it easier to navigate the home-buying process, ultimately making home ownership a more attainable goal.
