How much more money home buyers can spend on a property now

Changes to lending standards to disregard the HELP debt of home buyers wouldn’t add a significant amount to borrowing capacities and would affect few would-be purchasers, experts say.

The federal government announced on Wednesday that the bank regulator would no longer require lenders to include HELP repayments in their serviceability assessments for first home buyers or include the debt when calculating a would-be buyer’s debt-to-income ratio.

The changes to lending requirements are only expected to give a modest boost to borrowing capacities. Credit: Dion Georgopoulos

Early estimations suggest that in practice the changes would add about as much as $25,000 to the budget of the average buyer with a HELP debt because the median outstanding education loan for 25-to-40-year-olds was $23,500, on Australian National University modelling, and the average repayments paid were about $5500 a year.

“Your typical person who’s paying back a HELP debt at the moment, their typical taxable income is about $100,000. That’s a 5.5 per cent HELP rate you have to pay, so that’s $5500,” ANU’s Centre for Social Policy Research Associate Professor Ben Phillips said.

“That’s $5500 less disposable income you have left to pay back a loan. That probably equates to somewhere near 10 per cent in a bigger loan, around $20,000 to $25,000 more that you can spend.”

Phillips said the extra money would only be a small bump when compared with how unaffordable house prices were.

“I’m thinking it’s probably relatively small beer compared to where houses prices are. It might help a little bit and it might add to housing demand a little bit,” he said. “I’d be shocked if this made much of a difference to the macroeconomy as well … On balance it’s OK, but I wouldn’t get too excited about it.”

Foster Ramsay Finance director and mortgage broker Chris Foster Ramsay agreed he would expect to see a lift of about $20,000 to $25,000 to a buyer’s budget, but stressed he would need to see how the changes worked in practice to know their true effect.

“Nobody really knows how much difference it’s going to make,” he said. “It’s not going to free up a massive amount of money, but it will free up some.”

Foster Ramsay said the change could be the difference for some buyers at the edge of being able to purchase, despite its otherwise small effect.

“At a high level, only good things can come of it,” he said. “If a buyer is right at the edge of a number they want to buy for, they might be able to get lucky and get the deal over the line.”

Given the relatively small expected boost to borrowing capacities, Foster Ramsay said the expected Reserve Bank cash rate cut could push prices further out of reach.

“If it turns the property market and makes properties cost more, it will make this change obsolete,” he said.

The central bank meets on Tuesday and will decide whether to cut the cash rate from its decade high of 4.35 per cent. Even if it does not move next week, reductions are widely expected this year.

ANZ on Wednesday forecast capital-city housing prices to rise just 0.9 per cent in 2025, down from a previous forecast of 2.7 per cent, with price falls in Melbourne, Sydney and Canberra, and only two rate cuts.

Phillips said he was unsure it was wise to ignore HELP repayments when assessing serviceability.

“HELP debt is a real debt, and it is something you have to pay back, and it means your disposable income for five, 10, whatever years is reduced – it is something you have to take into account,” he said. “But it’s an income-contingent debt, so it isn’t as risky as some other debt.

“I’m not sure it should be completely ignored … but at the same time it is different to other debt.”

UNSW City Futures Research Centre senior research fellow Dr Chris Martin said the lending standards change was in practice similar to first home owner grants, a policy he has criticised for its negative effect on affordability.

“All of these things go to increasing the borrowing and purchasing power of first home buyers, but if you’re not doing something about how existing home owners have their borrowing power increased by rises in market prices, you’re ultimately not doing much for prospective home owners.”

Martin’s previous research found Australian governments spent more than $20.5 billion on first home buyer help in the decade to 2022, which he said at the time had gone into inflating home values and could have funded 60,000 social housing dwellings.

Phillips said the effect on prices was likely to be small, if at all perceptible, though he agreed increasing the amount of money buyers could spend usually increased prices.

“It’s something, but then again, to be frank, usually things the government does are small … there’s only so much they can do.”