Interview with ABC Sydney Drive on HELP debts and lending  

Chris Bath (Host): What’s been your experience of getting finance to buy a house while you’re juggling your HECS HELP debt? Still finding it hilarious actually, that the word help even features in university debt acronyms, but that’s a whole other can of worms. You might have heard the Treasurer, Jim Chalmers, out and about this morning speaking that the big banks have agreed to review the impact of university debt on home loan approvals because of his intervention. Here’s Jim Chalmers. 

Jim Chalmers: What we’ve asked them to do is to take a more reasonable approach to student debt. It is a different kind of debt. You pay back that loan in an income contingent way, and so it’s less risky than other types of debt. And so this is just a set of commonsense changes to get more people into a home. It’s why I’ve taken the lead on this, speaking to the regulators, speaking to the banks, to see if we can make a meaningful difference for people who might have otherwise been excluded because of their student debt. 

Chris Bath: That’s treasurer Jim Chalmers on AM this morning. Now this is not a done deal. To get the perspective of the banks, Anna Bligh, the outgoing Chief Executive of the Banking Association, is here. She’s planning to retire mid-year but will remain until her successor is named. Anna Bligh, lovely to have you on Drive. Thanks for your time.  

Anna Bligh (Guest): Good afternoon, great to be with you. 

Chris Bath: Before we get into the treasurer’s plans. How are banks looking at student debt at the moment? 

Anna Bligh: Well, it’s important that in the Treasurer’s comments, he talked there about regulators, because banks are quite heavily regulated by both the Prudential regulator APRA and by ASIC, and both of those regulators have regulations around how banks lend, and the circumstances in which they lend, and the things they have to take account of.  

And the current regulatory framework doesn’t have much flexibility – it really doesn’t have any flexibility. Banks have to take into account student debts in their serviceability assessments. What the Treasurer has asked the regulator to do is to look at giving more flexibility in those regulations so that a bank could take into account the personal circumstances of each applicant, and in some cases, provide a serviceability assessment that would get that person into a loan. I want to stress, banks want to keep lending responsibly, they don’t want to get young people into debt that they can’t afford. But if, for example, your student debt was going to be paid off sometime in the next 12 months, and you’re looking at taking out a housing loan over 30 years, then banks could kind of look through that and make a judgment about whether you can get from where you are now to say the eight month mark before you don’t have to make that payment.  

Chris Bath: If the regulators update their guidance, will the banks make it easier for people with a HECS or a HELP debt to get a mortgage? 

Anna Bligh: Oh, absolutely. If the regulators provide more flexibility, banks will be using that flexibility, but they will be using it responsibly. I think it’s important to understand this will not mean that every single person who has a HECS debt will suddenly get a housing loan, but it will make a difference for some people in depending on their personal circumstances, and it means that some people with certain kinds of debt, student debt, will be able to get a loan who may not have otherwise, or in some cases, may be able to borrow slightly more than they would have otherwise. So, getting into that first run on the housing ladder is important to everybody’s financial wellbeing, and if we can help even some, that’s a very good outcome. 

Chris Bath: So, if you qualify by certain kinds of student debt, what do you mean by that? 

Anna Bligh: Well, what I mean is how much do you owe? How much longer have you got to pay it off? What’s your income? How do all those things come together? And it may be, as the best example I can give you is, but there may be others, depending on people’s personal circumstances, is, if you’re on track to pay that debt off in less than the next 12 months, banks, as I said, could kind of look through that and say, well, what will your income be when you don’t have that in seven or eight months’ time? And on that basis, we can get you into this loan, which might get you into the housing market, eight or nine months earlier than you might have otherwise. And that can make a material difference. 

Chris Bath: Anna Bligh is here from the Australian Banking Association on 702 ABC Sydney. And I guess from the outside looking in, it’s hard to figure out what the parameters around this would be for banks, because you kind of look at it and think, well, debts debt. Could this potentially put more pressure on borrowers because of the way repayments to HECS debt is scaled. You know, if you’ve got a mortgage to service as well as your HECS debt, is that just going to pile on financial stress. 

Anna Bligh: As I said, banks will continue to meet all of their responsible lending obligations. I don’t for one minute imagine that the regulators are about to give some kind of carte blanche on this. Nor would banks want that. It’s more about giving sufficient flexibility so that where banks can exercise that flexibility, it can help us – at least a group of people who are trying to get into the housing market. So for example, there are a number of professions and jobs where it’s absolutely clear that in three months’ time, you’re going to get to the next level on the wage scale, and that will make a very big difference to how you could pay off the HECS debt and the HECS debt may be finishing in less than 12 months. All of those things can then come together to allow banks to make an exception in that individual case. I should say that when banks do exercise this kind of flexibility and they make an exception, they have to report those exceptions to the regulator, so the regulator keeps a pretty good eye on, ‘gee, you suddenly, you’ve got a whole lot of exceptions, let’s go and have a look at that’. So, it’s not like this is something that regulators will just take their hands off. They’ll be keeping an eye on ‘are you using that flexibility wisely, appropriately?’ It’s not in the interest of a bank to give someone a loan that they can’t pay. That’s just trouble for the bank, trouble for the customer. 

Chris Bath: Anna Bligh, I know you have another commitment. Thanks very much for joining us, and good luck with your retirement in the middle of the year.  

Ends 

Anna Bligh