Homeownership will become easier for Australians burdened with student debt after financial regulators promised to relax HECS treatment by lenders.
At the urging of Treasurer Jim Chalmers, the prudential regulator agreed to tell banks they can exclude HECS repayments from serviceability assessments if they are about to pay the debt off in the short term as part of responsible lending practices.
HECS will also be excluded from debt-to-income reporting purposes, further boosting eligibility.
Existing requirements were holding banks back from providing mortgages to some prospective borrowers due to uncertainty around how to treat student loans, given the payments are contingent on a borrower's income.
The corporate regulator will also change its guidance on HECS debts, pending consultation.
While the changes won't erase barriers to homeownership on their own, they have the potential to unlock more credit for prospective homebuyers, Australian Banking Association chief executive Anna Bligh said.
"Our industry welcomes this move and the clarity it will provide for banks when they are making lending assessments," she said.
"Banks support responsible lending rules to protect borrowers and ensure they can repay their loans.
"However, there is always merit in carefully considered updates to regulatory guidance that may help some Australians safely access more credit."
The "commonsense clarifications" would help more young Australians buy a home, Dr Chalmers said.
"We need to recognise that student debt is different to other kinds of debt," he said.
"We want to make sure that people with a student debt aren't disadvantaged when it comes to getting a mortgage."
Dr Chalmers could not say how many prospective homebuyers had been knocked back as a result of their HECS debts.
About three million Australians have outstanding HECS debt and the average balance is about $22,000 per person.
Opposition finance spokesperson Jane Hume criticised the initiative as a "late thought bubble" from the treasurer.
"Whether it's going to make a real difference is yet to be seen," she told AAP.
The coalition has its own policies to promote home ownership, including allowing first home buyers to raid their superannuation balances to buy a property.
Universities Australia said the changes were a "no-brainer".
"No one should have to choose between owning a home and attending university," chief executive Luke Sheehy said.
"This is a practical change that will ensure university graduates are treated fairly when they want to buy a house, as they should be.
The treasurer also asked the Australian Prudential Regulation Authority to clarify a misconception that hampered developers trying to access finance for apartment projects, and limiting housing supply.
That was apparently due to a misinterpretation of advice given by the regulator in 2017, which some lenders misconstrued as preventing them from handing out loans to builders who hadn't pre-sold all properties in a development.
The regulator will tell the banks that, while it expects them to consider the extent of pre-sales as part of prudent credit risk management, it does not expect 100 per cent pre-sales for them to approve a loan.
"By unlocking more finance from the banks we'll see more housing projects get off the ground more quickly," Dr Chalmers said.
Westpac CEO Anthony Miller said the lending changes would help address structural obstacles faced by builders supplying new homes.
"The clarification on pre-sale requirements will offer greater certainty to move quickly on developments and construction, while changing the treatment of HELP loans in serviceability assessments will assist aspiring home buyers," he said.
Property Council chief executive Mike Zorbas welcomed the change, saying Australians needed more apartment living options close to jobs, opportunities and transport.
