NAB Becomes Latest Major Bank to Relax Home Lending Rules for Borrowers with HECS-HELP Debt
Move Acknowledges Growing Burden of Student Loans, Aims to Improve Homeownership Prospects for Graduates
In a significant shift aimed at addressing a major barrier to homeownership, National Australia Bank (NAB) has announced it will relax its serviceability criteria for mortgage applicants with HECS-HELP debt. The change makes NAB the latest of the big four banks to adjust its policies, reflecting the growing recognition that standard lending models can unfairly penalize graduates.
The policy update is designed to provide a fairer assessment of a borrower’s true financial position and increase the borrowing capacity for a generation grappling with large student loans.
The Core of the Change: How the Calculation Works
Previously, most banks, including NAB, would add the gross annual HECS-HELP repayment amount (as calculated by the Australian Taxation Office) directly to a applicant’s monthly living expenses when assessing their ability to service a loan. This significantly reduced their maximum borrowing power.
Under NAB’s new policy:
- The bank will now use the net impact of the HECS-HELP debt on the borrower’s take-home pay.
- This means they will consider the borrower’s income after the HECS-HELP repayment has been withheld by their employer, rather than effectively counting the debt obligation twice—once as a reduction in income and again as a declared expense.
Why This Change Matters
The difference this makes is substantial. For example:
- A borrower with a $40,000 HECS-HELP debt and an annual salary of $100,000 has a mandatory repayment of $7,000 (7% of their income).
- Under the old model, a bank would treat that $7,000 as an annual expense, drastically reducing their serviceability.
- Under the new model, NAB will assess them based on their post-repayment income of $93,000, which presents a much more accurate picture of their actual cash flow and can significantly increase their eligible loan amount.
Industry Trend and Driver
NAB’s move follows similar announcements from Commonwealth Bank (CBA) and ANZ in recent months, signaling an industry-wide shift.
The change is driven by two key factors:
- Skyrocketing Student Debt: HECS-HELP debts have ballooned in size due to rising education costs and indexation, making them a much larger factor in a borrower’s financial profile.
- Fairness in Assessment: The old method was widely criticized by brokers and consumer advocates for being a “double count” that unfairly locked many high-income, financially responsible graduates out of the housing market, despite them having strong repayment capability.
A Note of Caution for Borrowers
While this policy relaxation is welcome news for graduates, economists and financial advisors urge caution:
- Debt is Still Debt: A HECS-HELP debt is still a liability. Borrowers must be careful not to overextend themselves on a mortgage based on their new, higher borrowing capacity.
- Indexation: The debt is indexed to inflation annually, which can cause it to grow even if no new study is undertaken.
- Bank Policies Vary: While CBA, ANZ, and now NAB have moved, Westpac is the last of the big four yet to announce a similar change. Policies can also differ between major banks and smaller lenders.
Conclusion
NAB’s policy update is a pragmatic response to a modern financial reality. It acknowledges that a one-size-fits-all approach to loan assessment can disadvantage younger borrowers who have invested in their education.
For countless teachers, nurses, engineers, and other professionals with student debt, this change could be the key that unlocks the door to homeownership. However, as with any loan, the responsibility remains on the borrower to ensure their financial decisions are sustainable for the long term.