If you are a first home buyer in Australia and currently has HECS and/or Afterpay debts, then brace yourself for some hard news.
The Australian Prudential Regulation Authority has updated lending standards forcing banks to consider HECS/HELP debts and money owed to buy now, pay later (BNPL) providers.
Will HECS debt affect home loan? And will debts to Afterpay affect home loan? Short answer: Yes. This will most likely be the case in the foreseeable future.
But first, what is HECS help debt?
HECS-HELP is a program offered by the government to assist students who need government funding to cover most of their uni fees from institutions acknowledged as a Commonwealth Supported Place (CSP). It is a type of buy now, pay later loan.
HECS or Higher Education Contribution Scheme is the type of loan you take out as a uni student to pay your contribution of your uni fees.
HELP or Higher Education Loan Program is the overall program that provides loans to eligible students.
Essentially, a HECS-HELP debt is obtained immediately following the elected ‘census’ date (last day you can make an upfront payment) for any University course you have nominated to receive HELP assistance for.
And what are Afterpay loans?
Afterpay is a ‘buy now, pay later’ platform. An afterpay loan is a short term personal loan which customers can use to shop online or in stores.
Afterpay allows customers to repay their loan in four equal instalments done fortnightly, lasting eight weeks. Although these payments are interest-free, Afterpay charges late fees to people who are not up-to-date with payments.
HECS-Help and Afterpay debt and its impact on first home buyers
HECS-HELP debts and BNPL debts are now taken into account under DTI (debt to income) where they were previously not.
For instance: a HELP debt worth $50K will actually reduce peak borrowing capacity by $50K. In addition, what the repayments are as a percentage of gross income in line with the Government Threshold Payments will also play a part in the maximum loan a client can get.
Afterpay and other BNPL style facilities are normally assessed like a credit card – but this can vary depending on the lender’s policy.
Although debts from HECS-HELP were already included before, APRA’s mandate for banks to also include BNPL debts impacts younger Aussies the most — and this demographic comprises the bulk of the first home buyer market.
As BNPL is now considered an ongoing debt (and the same for higher education loans), the borrowing capacity for first home buyers will be drastically reduced. This is because their level of existing debt has increased from a lender’s perspective.
What to expect
It is projected that the property market will drop in 2022. ANZ is already predicting a 20% decline in Sydney prices.
With a host of swirling conditions like dropping property values, higher costs of living, and rising interest rates, it is likely that banks will be focusing more on the borrowing capacity of mortgage holders now and into the future.
FAQs:
Do banks look at your HECS debt?
Banks will assess your financial obligations (e.g., personal loans, car loans, credit card debt, dependent children, higher education debt) to determine how much they can safely loan you.
Does HECS debt affect home loan?
Yes. Banks and lenders look at your HECS debt when applying for a home loan, as your HECS debt will have effects on your income.
Does HECS affect your credit rating?
No. HECS-HELP and FEE-HELP loans won’t generally impact your credit score. When it comes to credit reporting, they don’t work in exactly the same way as loans provided by banks.
Do banks look at Afterpay?
Yes. Mortgage brokers and banks will see your Afterpay expenditures because your Afterpay account is linked to your card and bank account.
Does Afterpay affect getting a loan?
It does now, with the recent APRA mandate. Does Afterpay affect home loan: yes. Afterall, you cannot hide Afterpay debt from potential lenders.
You will be asked to submit your Afterpay statement for bank and lending institutions, who in turn will be able to see everything spent through your Afterpay accounts.
Does Afterpay affect credit score Australia?
No. However, Afterpay can perform credit checks and report negative activity (e.g., late or missed payments, defaults or chargebacks) on your account, which could result in a black mark on your record, just like with any other source of credit.
Does Afterpay affect buying a house?
In itself, an Afterpay account should not be an obstacle to buying a house. But since lending institutions and banks will now be taking your BNPL debts into account, incurring Afterpay debts might have a bearing on your ability to purchase a house.
How to close Afterpay account?
Visit this page for more information.
Talk to the experts at North Brisbane Home Loans
Questions like ‘can HECS debt affect home loan’ or ‘can Afterpay affect home loan’ have always circulated around the property market. Now that APRA has made a definitive decision, first home buyers might feel more agitation and require more clarification around the home loan application process.
Feel free to reach out to the team at North Brisbane Home Loans if you are seeking professional advice and assistance.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
