HECS and Housing: What's going on?

With the recent election, there have been swirling announcements from politicians, regulators and banks about the changes to HECS debt. With the dust now settling, it is a good time to look and where things currently stand and how this might affect your purchasing power.

Labor’s HECS reduction

The Labor party took to the election a policy to slash people’s HECS debt by 20% if it won the election. After their convincing win, the party has committed to this being the first piece of legislation it introduces in the next Parliament when it returns from July 22nd. With the average current HECS debt being around $27,600, this will result in an average reduction of roughly $5,500.  

Following the passage of legislation, the ATO will apply the one-off 20% reduction. Individuals will not have to do anything. The 20% reduction will be calculated based on what a person’s HELP debt amount was at 1 June 2025, before indexation was applied.

Disregarding HECS from loan serviceability

In February, Treasurer Jim Chalmers requested both APRA and ASIC to update their guidance on considering HECS debt in mortgage serviceability. The Government’s reasoning being that they are “tackling this housing challenge from every possible angle… [providing] commonsense changes that will help more Australians into a home”.

Previously a bank would consider a HECS debt as it does other forms of debt limiting the amount that someone could borrow. Under the new changes, banks are being encouraged to mitigate a person’s HECS debt in their assessments under certain circumstances.

Commonwealth Bank takes the lead

Following APRA’s updated guidance, CBA has announced that it will not be considering HECS debt in their loan assessments in two scenarios. If the debt is due to be paid off within a year, CBA will disregard the debt entirely. If there is two to five years remaining, the bank will apply a reduced rate. This will help to increase the borrowing power of individuals who have invested into their education and earning potential that are getting close to paying off their HECS and open up more purchasing options for them.

Many in the market expect other major banks to follow CBA’s example.

What does this mean for you?

A combination of a reduction in HECS debt alongside altered serviceability assessments back by the government and regulators, means that come July, your borrowing capacity could increase.

We have seen individuals borrowing power increase by up to $100,000.

If you add these changes to the recent reduction in interest rates they could all add up to help make that first property purchase a reality much sooner than it otherwise would.

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