NAB changes home lending rules on student debt

NAB is the latest big bank to adjust its home lending rules around student debt.

From 31 July, NAB will ignore HELP debt of $20,000 or less in its home loan assessments.

It essentially means those carrying lower levels of student debt could see a boost to their borrowing power.

See also: Borrowing power calculator

NAB executive of home ownership Matt Dawson said the change will make a real difference to many first home buyers.

"For too long HELP debt has been a roadblock for many Australians looking to buy a home," Mr Dawson said.

Big lenders get on board

NAB follows Commonwealth Bank of Australia which announced in April it would disregard student HELP debt if a home loan applicant was on track to pay it off in 12 months or less.

CBA went a step further, saying it would also wipe 2% off the mandated serviceability buffer when assessing applicants who were due to pay off their HECS-HELP debts over the next one to five years.

The big bank changes follow calls by federal Treasurer Jim Chalmers in February, urging the banking regulator APRA to relax the rules for banks in assessing student debt in home loan applications.

APRA responded by asking banks for feedback on the removal of some HECS-HELP debts from their home loan approval processes.

Unlike other debt, HECS-HELP repayments are taken from wage earners' pre-tax income and how much they repay each year depends on their income.

If earnings fall below a set threshold, HECS-HELP repayments are suspended until income levels are sufficient to restart payments.

Boost for first homebuyers

NAB's announcement comes hot on the heels of a bill to reduce all HECS-HELP debts by 20%, a key Labor promise in the lead up to May's federal election.

The bill was introduced to the first sitting of the new Parliament on Wednesday and is expected to pass with almost universal support.

When it's legislated, it will see student loans cut for almost three million Australians.

The income threshold for repayment of student debt will also be lifted to $67,000 - up from the old mark of $54,435.

But while NAB welcomes moves to increase buying capacity for young homebuyers, Mr Dawson said housing supply remained the most significant challenge.

"It is critical to address both demand and supply-side measures together to help more Australians buy a home," he said.

"There's no simple fix. Solving Australia's housing challenge will take collaboration across the board."

Image by Marta Klement via Pexels

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