You know an election is looming when the country’s number one bean counter, Treasurer Jim Chalmers, is telling the regulator to tell the banks to stop HECS debt being a loan killer!

Yep, that’s what will happen today with the Treasurer set to instruct the Australian Prudential Regulation Authority (APRA), the boss of banks, basically to tell lenders to ignore HECS debt when someone applies for a home loan. This would be a great vote-catcher for anyone looking for a home loan.

It will also be great news for mortgage brokers, who often pick up a lot of business when people seek to refinance their home loans. Clearly, given this rule change, someone with a home loan now could possibly borrow more when looking to change their loan.

The AFR’s Michael Read explained how student debt affects loan applications now. “Under the responsible lending rules, banks are currently required to take a prospective homeowner’s student loan debt into account when determining how much they can borrow to buy a home, treating HECS the same way as credit card debt or personal loans,” he explained.

Nowadays we call HECS debt HELP debt. While it’s an interest-free loan, it is indexed to inflation and when Covid pushed inflation up over 7% it increased the total debt of many students and home loans became harder to get.

Read revealed that HECS critics “say it makes no sense to treat student debt like other debt since a person has no obligation to repay HECS unless they earn at least $54,435, [and] if a person loses their job, their HECS repayments are suspended”.

APRA will also tell banks to ignore HECS debt when working out a borrower’s debt-to-income situation, which can be a problem for anyone seeking a loan.

While this sounds great, there is a condition with the Treasurer’s generosity and that is that a lender can ignore the HECS debt for their serviceability test on the loan, if as Read says, they expect the borrower to pay off the debt in “the near term”.

So, the big question has to be: what is the near term? At this stage we don’t know how the near term will be defined but it will be critically important to those applying for a loan.

Yep, this is the sort of great idea that comes to penny-pinching Treasurers when an election is looming. To be fair, the Coalition is chasing aspirational young home buyers with plans to make it easier to access their super to make their property dreams come true.

Of course, this new HECS treatment change will help increase the number of Australians having access to loans to buy homes, but the country has a supply problem. A recent National Housing Finance and Investment Corporation report showed that there will be a shortage of 106,000 homes by 2027 across Australia as a result of rising interest rates, a surge in immigration, a lack of building and community opposition to development.

Meanwhile, the AFR reported that “insolvency appointment data published by corporate regulator ASIC this week show 1943 construction industry insolvencies for the financial year to January 26, a 24 per cent increase on the same period a year earlier”.

This supply problem is a government challenge to fix. It will need visionary, gutsy leaders at the federal, state and local government levels before it’s fixed. There’s no point creating new borrowers unless you have homes they can buy, because without this supply, house prices will spike and that will cut a lot of potential homeowners out of the market.

Clearly, better policies to help building firms not to go broke would also be a great idea for future governments.