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Does hecs debt affect home loans?

February 7, 2023

 

When it comes to applying for a home loan, having a HECS debt can be a major factor in determining whether or not you are approved. HECS debt, or Higher Education Contribution Scheme, is a loan taken out by students to help pay for their tertiary education. It is a loan that is provided by the Australian government and is repaid through the taxation system.

 

 

The main question is, does having a HECS debt affect your ability to get a home loan? The answer is yes, it can. Banks and lenders will take into account your HECS debt when assessing your application for a home loan. This is because they want to ensure that you are able to make your repayments on time and in full.

 

 

When assessing your application, lenders will look at your income, expenses, and other debts. They will also look at your HECS debt and how much you owe. If you have a large HECS debt, it may affect your ability to get a home loan. This is because lenders may view you as a higher risk borrower and may be less likely to approve your application.

 

However, it is important to note that having a HECS debt does not automatically disqualify you from getting a home loan. Lenders will take into account other factors such as your income, expenses, and other debts. If you have a good credit history and a stable income, you may still be able to get a home loan despite having a HECS debt.

A neat and clean study room

 

It is also important to note that having a HECS debt does not necessarily mean that you will be charged a higher interest rate on your home loan. Lenders will assess your application on a case-by-case basis and may offer you a competitive interest rate.

 

 

If you are considering applying for a home loan and you have a HECS debt, it is important to be aware of the potential impact it may have on your application. It is also important to be aware of the other factors that lenders will take into account when assessing your application.

 

 

Overall, having a HECS debt can affect your ability to get a home loan. However, it is important to remember that lenders will take into account other factors such as your income, expenses, and other debts. If you have a good credit history and a stable income, you may still be able to get a home loan despite having a HECS debt.

 

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The Australian Banking Association (ABA) has launched a campaign encouraging borrowers struggling with loan repayments to seek help, in a valuable reminder there are options available if you're finding it hard to keep up with your mortgage. Your bank may be able to: Reduce your home loan repayments. Pause your repayments temporarily. Switch your repayments from principal and interest to interest-only temporarily. Increase the length of your loan (thereby reducing the repayments). ABA CEO Anna Bligh said banks understood many borrowers were facing challenging circumstances. “Banks stood by their customers during the COVID-19 pandemic, deferring payments for people who for the first time in their lives found themselves unable to pay. Banks stand ready to help people again now,” she said. “People who are finding their finances are stretched should not feel they have no options and they have to do it on their own. Banks have dedicated, highly experienced teams ready to help.” As your broker, I'm also here to help. You're welcome to contact me for advice; I can then speak to and negotiate with your lender on your behalf. The key thing is to move fast, because the further you get ahead of the problem, the more flexible and helpful banks tend to be.

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The Reserve Bank of Australia has rounded out 2023 with the decision to hold the nation’s cash rate at 4.35%. 2023 hasn’t been an easy year for homeowners or ambitious first-home buyers. The cash rate increased from 3.10% to 4.35% over the course of eleven months in the RBA’s bid to bring inflation back within its target range. According to data from the RBA, the average home loan rate at the start of the year (for existing home loans) was 5.46% p.a.. If the lender passed on interest rates in line with the increased cash rate, that would make the interest rate 6.71% p.a.. Based on the average Australian mortgage of $599,000 on a 25-year term paying principal and interest, that equals an additional $459 per month simply to service the mortgage (from $3,661 to $4,123 per month). For first-home buyers, the average time to save for a deposit has increased to 14 years, according to a recent paper by the Australian Housing and Urban Research Institute Limited, with the national ratio of median house price to median income now sitting at 8.5. That is the hard reality many Australians are currently facing. So the question is, what will 2024 bring? Short of looking into an Australian-economy crystal ball, we can’t predict exactly what will happen with inflation, the cash rate and therefore interest rates. However, there are a couple of factors to consider. The RBA will meet only eight times in 2024 to determine whether to move the cash rate, down from the eleven in 2023. This means potentially less movements through the year. The next cash rate announcement will be 6 February. Economists from the Big Four predict the cash rate is at, or near, its peak. Some predict at least one more rate hike in 2024 and rate cuts likely not happening until at least December. Despite predictions of a decline in house prices in 2023, they have actually continued to increase in most areas around the country. This could be good news for refinancers as we enter 2024, as they could find their equity has grown. Why 2024 could be a good time for first-home buyers Despite some potential challenges, 2024 could actually be a good time to get into the housing market. Here’s why. Savings interest rates are up - the pro of the cash rate going up is that savings interest rates also tend to go up. This can help expedite saving for a deposit. It could be cheaper to be a homeowner - according to PropTrack data, it is now cheaper to buy an apartment rather than renting one in most capital cities (based over a ten-year period with a 20% deposit). In fact, a third of properties nationally are cheaper to buy than rent. The First Home Guarantee has expanded - in 2023 the eligibility criteria for the First Home Guarantee, Family Home Guarantee and Regional First Home Buyer Guarantee was expanded, enabling eligible buyers to get into the market sooner. This means if you have a 5% deposit (or 2% if you are a single parent or guardian), you may be able to use one of the schemes to purchase property without paying lenders mortgage insurance. ‘Help to buy’ scheme to be introduced - the federal government has announced plans to rollout a new scheme that will help up to 40,000 eligible buyers with as little as a 2% deposit get into the housing market with lower repayments. If 2024 is the year you want to purchase your first home, it is a good idea to speak with your broker to find out how much you may be able to borrow and set a plan in place to achieve your goal.
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