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It’s official: Buy now pay later debt could wreck your chance of a home loan


APRA has reminded lenders that they have to factor in HECS-HELP and BNPL debts when assessing borrowers.

If you're applying for a home loan, lenders must consider buy now pay later (BNPL) debt and HECS-HELP debt when determining how much you can borrow.

That sounds obvious, but it's something the Australian Prudential Regulation Authority (APRA) felt necessary to clarify.

In a letter to lenders today, APRA announced changes to the lending standards banks and lenders must follow. Included in the letter is clarification around how lenders treat HECS-HELP and BNPL debts:

"To ensure a consistent approach is taken across industry, APRA has clarified below that HECS-HELP loans and debt incurred through BNPL schemes would be included in DTI ratios."

The updated guidelines take effect from September.

DTI, or debt-to-income ratio, refers to the total outstanding debts a borrower has accumulated compared to their gross annual income before tax.

Prior to this clarification, it seems that items like BNPL spending existed in something of a grey area for lenders. This isn't surprising. BNPL looks a lot like a debt, but BNPL companies (unlike lenders) charge fees rather than interest, and don't fall under the National Consumer Credit Code.

This may change soon. The new financial services minister Stephen Jones has said that he wants to "start working on regulating [BNPL companies] within the credit space".

Lenders have been taking an inconsistent approach to dealing with BNPL debts and unpaid university loans.

Traditionally, HECS-HELP is the least worrying form of debt in Australia. There's no interest. Unpaid debt is indexed for inflation once a year. Many borrowers don't even think about it when applying for a loan.

But some lenders have started looking closely at this debt, and even requiring borrowers pay it off before approving a loan.

Finder's senior editor of global finance Liz Barry discovered this recently when she applied for a home loan.

"In order to be unconditionally approved for the amount we needed, I was required to repay my full HECS debt which came in at just over $10,000," Barry said.

"I knew I had to inform the lender about my HECS debt, and they would see the amount deducted on my payslip anyway. But I was not aware it would affect my application in such a negative way."

Looking for a better home loan deal? Check out some of Finder's top home loan picks.

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