HECS debts holding millions of first home buyers back

Jill Radge, a 26-year-old teacher, has revealed how after sacrificing for six years to save for a deposit, her HECS debt nearly killed her dream of buying a home.

HECS debts have become one of the biggest hurdles for young hopeful buyers getting into the property market and approximately 2.9 million Aussies have one.

First home buyers in Australia have faced significant challenges in recent years, with rising rents, living costs and property prices making it harder than ever to enter the housing market.

Despite a degree being a necessity to secure a job in many professional fields and HECS often placed in the “good debt” category – many buyers don’t realise when it comes to getting a loan, it significantly effects borrowing power.

Research from Finder.com.au revealed 2.9 million Aussies have a HECS-HELP debt and the average amount was around $27,640 in the 2023–2024 financial year, up from $26,494 in 2022–23.

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First homebuyer Jill Radge who says HECS should be excluded for first home buyers loan assessments. Picture: Sam Ruttyn

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The number of people with HECS debts above $40K is now almost one quarter of all debtors, according to Finder.

Canstar estimates showed that, for someone on the average wage (about $103,000 a year), excluding HECS debt repayments could potentially boost their borrowing capacity by up to $64,000.

For someone earning a lower income of $80,000 per year, this could potentially boost their borrowing capacity by $33,000.

Canstar director of research Sally Tindall said Australians who have invested in their education should not be unfairly disadvantaged when it comes to securing a home loan.

Canstar’s Sally Tindall. Picture: Tim Hunter.

“Excluding HELP debt repayments from banks’ borrowing capacity assessments where the borrower is expected to pay off the debt in the ‘near term’ is a step in the right direction, and one that could help level the playing field for those trying to get a foot on the property ladder with student debt hanging over them,” she said.

“That said, first home buyers should carefully consider how much debt they’re truly comfortable taking on, rather than simply relying on the bank’s assessment of how much they can borrow,” Ms Tindall added.

Excluding HELP debt repayments could help first home buyers. Picture: Max Mason-Hubers

Jill Radge had saved for nearly six years, living with her parents, investing in shares and putting every spare dollar into saving for a deposit.

“I was really diligent with my money, I stopped spending money on clothes and only splurged when I needed to,” she said.

When she spoke to a broker to get her pre-approval, she was told her HECS debt was hindering her borrowing power.

“It took me by surprise,” she said. “A lot of young people are wanting to buy in Sydney and it’s really difficult when they’ve been at uni for several years and worked really hard to get into a professional career and it’s a huge hurdle to getting into property,” she said.

Ms Radge was taken by surprise when her HECS affected her borrowing capacity. Picture: Sam Ruttyn

“It’s such a big debt, I personally don’t think it should be a consideration for first home buyers,” she said.

Her broker advised her that for her circumstances, every $10,000 of HECS it would reduce her borrowing power by around $27,000.

Ms Radge had to make the decision of whether to pay off the rest of her HECS debt with her deposit and put her dream on hold, or have a tighter budget.

“I didn’t want to go past my budget, I didn’t want to burn myself,” she said.

Ms Radge decided to keep her HECS despite it impacting her borrowing power. Picture: Sam Ruttyn

She almost gave up the search to save towards a bigger deposit until she found a one-bedroom unit under her $730,000 budget on the Northern Beaches, which she said was always her dream.

“I decided to keep paying off my HECS debt, and I was able to pay it off while I have this home loan,” she said.

“Young people are working really hard and they work to buy into the Sydney market … from my experience the first homebuyer benefits have really helped me and helped me to support, I think it’s really important to help first home buyers get into the market.”

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