The Australian Prudential Regulation Authority (APRA) has updated lending standards making it compulsory for banks to consider your HECS/HELP debt as well as any money owing to buy now, pay later providers.
While many banks have chosen to include HECS debt in the past, the inclusion of buy now, pay later (BNPL) debt may impact younger Aussies the most.
APRA's guidance now makes it a standardised requirement that all lenders will need to apply HECS/HELP to their debt-to-income calculation (DTI) as well as BNPL.
Younger Aussies are more likely to have higher HECS debt and use BNPL products more than their older counterparts - so the change could affect first home buyers the most.
Matthew Gatt, general manager of home loans at Compare Club, said BNPL in particular had always been a grey area for the banks.
“Some banks have already included BNPL as an ongoing debt, some lenders just treat it as an expense,” Gatt said.
“APRA has now essentially signalled to lenders that they have to consider BNPL as an ongoing debt. This is the same for higher education loans.
“This move will reduce borrowing capacity for buyers even further, especially new buyers, as it increases their level of existing debt in the eyes of the lender.”
Gatt said it is likely APRA will move to tighten lending policy even further in the future.
“They already increased the minimum interest rate buffer by 0.5 per cent in October, which meant borrowers had to show they could afford repayments at 3 per cent above the loan product rate,” he said.
“That's since had the effect of ever-so-slightly cooling the market.”
How could this move affect the property market?
Tighter lending standards could bring prices down even further, Gatt said.
“For homeowners and mortgage holders, this means less to play with if they're thinking of tapping into their property's equity for debt consolidation, renovations or future investments,” he said.
“For buyers, it may mean that price points to purchase may drop somewhat. As always, some areas will outperform others, and some will drop faster than others.”
What can we expect the banks to do in the next few months?
Gatt said it is likely banks will have a strong focus on how much people can borrow, not only now but into the future.
“A combination of dropping property values, higher costs of living, and rising interest rates means lenders will want to ensure mortgage holders can not only afford their mortgage today, but will continue to afford it in a world of rising interest rates,” he said.
Will this be better for buyers or sellers?
Gatt said, despite younger Aussies perhaps feeling the pinch, all round this is set to benefit those looking to purchase a home.
“We're certainly moving into a buyers market at the moment,” he said.
“We may see more sellers holding onto properties as property values drop, so stock availability may become less than usual.
“However, overall property values are generally expected to fall and this usually favours buyers as opposed to sellers.”