Banks could soon relax lending restrictions for Aussies with HECS debts following request from Jim Chalmers

Treasurer Jim Chalmers said he is asking for a “commonsense” change that will allow help more Australians purchase their first home.

Banks could soon relax lending restrictions for first home buyers with HECS debts in a move the Albanese government hopes will get more Australians on the housing ladder.

Currently student debts drastically reduce the borrowing power of a loan applicant, as it affects the debt-to-income ratio and is viewed by lenders as unsecured credit card debt.

On Tuesday, Jim Chalmers said he had formally written to Australian Prudential Regulation Authority chair John Lonsdale and Australian Securities and Investments Commission chair Joseph Longo, calling on them to reassess their advice to banks and lenders.

A bank would still consider a borrower’s HECS repayments in an application.

But the Treasurer said the change was warranted given the income-contingent nature of HECS (also known as HELP) debts, which are scaled according to a person’s salary and only deducted on incomes over $54,435.

Treasurer Jim Chalmers described the changes as a ‘commonsense clarifications’. Picture: NewsWire / Martin Ollman

Major banking chief executives were also notified about the potential on Tuesday.

Both regulatory bodies have said they will promptly begin engaging with banks and lenders on how HECS debts are considered in income and debt reporting checks, and serviceability assessments.

APRA has also said they will inform lenders that they can exclude HELP repayments from serviceability assessments if the borrower is expected to pay off their loan in the near term.

Mr Chalmers has also called on APRA to clarify its regulatory rules to make it easier for developers to receive funding to build new units, by clarifying that businesses don’t need to achieve 100 per cent of pre-sales before applying for construction loans.

The 100 per cent rule was based on a misperception dating back to a letter issued by the regulator to industry in 2017.

The Treasurer described the regulatory tweaks as “commonsense clarifications that will help more Australians into a home”.

“People with a HELP (HECS) debt should be treated fairly when they want to buy a house and we’re working with the regulators to make sure they are,” he said.

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

Banking regulators have confirmed they will begin consultations to change the lending guidelines. Picture: NewsWire/ Nicholas Eagar

Housing Minister Clare O’Neil said the changes would allow more first home buyers to get into the housing market.

“For a generation of Australians, the prospect of home ownership feels too far away, and being a renter has never felt more insecure,” she said.

“Labor’s working to secure your future by making it easier to buy, better to rent and with our big housing build.

“Labor’s delivering lower deposits and smaller mortgages for hundreds of thousands of Australians over the next few years.”

In a major pitch to students, Labor have also promised to slash all student debts by 20 per cent if they win the election.

The $16bn plan would result in the average HELP debt of about $27,000 be reduced by about $5520.

Labor will also up the income threshold for HECS repayments to $67,000.

Originally published as Banks could soon relax lending restrictions for Aussies with HECS debts following request from Jim Chalmers