Banks will soon have more flexibility when assessing home loan applications, thanks to a federal government initiative aimed at increasing the borrowing power of first home buyers with student debt. Under new guidance from financial regulators APRA and ASIC, lenders can now overlook HECS-HELP and other student loans in debt calculations if the applicant is close to paying off the debt.

Treasurer Jim Chalmers described the move as “common sense,” saying it would “help more Australians into a home.” He added, “We’re tackling this housing challenge from every possible angle. People with a HELP debt should be treated fairly when they want to buy a house, and we’re working with the regulators to make sure they are.”

In addition to changes affecting home buyers, APRA will update lending rules for housing developers. The new guidance clarifies that a block of units does not need to be fully sold off-the-plan to qualify for a loan—a point that had previously been unclear.

“By unlocking more finance from the banks, we’ll see more housing projects get off the ground more quickly,” Chalmers said.

Part of a Broader Strategy

This is the third HELP-related policy the Labor government has introduced in the past year as part of its efforts to ease cost-of-living pressures without significantly impacting the federal budget. Last year, the government reversed the unusually high indexation of HELP debts from the previous two financial years. Additionally, Labor has pledged to reduce all outstanding HELP debts by 20% if re-elected.

Opposition’s Stance on Lending Requirements

The move comes as the Coalition considers its own proposals to relax lending rules for first home buyers, an initiative led by opposition Assistant Housing spokesperson Andrew Bragg. Bragg chaired a Senate inquiry that recommended rolling back “responsible lending” rules put in place after the Global Financial Crisis. His proposal includes lowering the serviceability buffer—a three-percentage-point “stress test” that lenders apply when assessing mortgage applications.

While the Coalition has yet to formally adopt Bragg’s recommendations, sources indicate that a proposal is prepared and awaiting review by the shadow cabinet. The current government has made it clear that it does not intend to alter responsible lending protections, with Labor senators on the committee opposing Bragg’s suggestions.

Labor Senator Jess Walsh warned that broader reductions in lending requirements could “result in higher house prices, expose first homebuyers to greater risk they cannot afford, and add systematic risk to the financial system, all without building a single home.”

Industry Response

The Australian Banking Association has expressed general satisfaction with the existing lending framework but acknowledged that current APRA and ASIC guidance has made some banks hesitant to lend to first home buyers.

Treasurer Chalmers previously discussed the matter with APRA Chair John Lonsdale in November and ASIC Chair Joe Longo in February. APRA regulates banks, which handle 92% of home loans, while ASIC oversees non-banking financial institutions, responsible for about 5% of home loans.

These changes reflect the government’s commitment to addressing housing affordability and making it easier for Australians, particularly those with student debt, to enter the housing market.