Australia’s financial regulator, the Australian Prudential Regulation Authority (APRA), will ease the impact of HECS debt on mortgage applications, following a directive from the Federal Treasurer.

Under the new guidelines, banks will be allowed to exclude HECS repayments from serviceability assessments if the debt is expected to be repaid in the short term.

In these cases, HECS will also be omitted from debt-to-income ratio calculations, improving borrowing capacity for affected applicants.

Previously, lenders viewed HECS debt as a financial liability due to its variable repayment structure, which fluctuates with income.

The change is expected to facilitate greater access to credit, particularly for younger buyers.

Australian Banking Association chief executive Anna Bligh said the reforms could unlock more lending opportunities, while Treasurer Jim Chalmers believes the move will support homeownership among young Australians.

“We need to recognise that student debt differs from other types of debt,” Chalmers said. “We want to ensure people with HECS aren’t unfairly disadvantaged when applying for a mortgage.”

Approximately 3 million Australians carry HECS debt, with the average balance sitting at $22,000.