A 5% deposit, a HECS debt, and a first home

The situation

Both partners are salaried, one in health, one in local government, with clean credit files and steady savings history. Rent is $650 a week, paid on time for three years. They want a two-bedroom apartment in the Inner West, realistically in the $750,000–$850,000 range, and they have watched prices move faster than their savings for two years.

The problem

A 20% deposit on an $800,000 apartment is $160,000 plus costs, four more years of saving at their rate, in a market that hasn't waited for anyone. Meanwhile their HECS repayments trim each pay packet, and they've read conflicting advice about whether the debt kills their borrowing power or barely matters.

What made it difficult

Three things interact here and none of them is obvious from a calculator. First, HECS is assessed as the compulsory repayment percentage of income, so it reduces borrowing capacity meaningfully at their income level, but paying out the whole balance would consume most of the deposit, which is usually the worse trade. Second, the 5% Home Guarantee Scheme has property price caps and income caps that their file sits close to. Third, apartment choice matters: a scheme place plus a lender plus an apartment the lender will accept must all line up on the same contract.

What a broker assesses

Both credit files, pulled before anything is lodged. Actual living expenses against declared ones. The HECS repayment tier each income lands in, and what capacity looks like with the debt left in place versus partially cleared. Scheme eligibility on this year's caps. And the shortlist of lenders whose serviceability treatment of HECS is kindest at exactly this income level, the spread between the tightest and most generous lender on an identical file is regularly tens of thousands of dollars.

The lending considerations

Keeping the HECS debt and buying with 5% usually beats clearing the debt and waiting, the repayment drag on capacity is real but modest at this income, while four more years of price growth is not. The scheme cap does the disciplining: it forces the search into a price band the couple can genuinely service. The main risks to manage are apartment acceptability (size, building, strata) and not exhausting the deposit to zero, settlement costs and a buffer still need to exist on the day.

What borrowers can take from this

If HECS is the thing stalling you, get the number modelled rather than guessing, the answer is usually "leave it and buy" but it depends on income tier and timing, including the indexation date. If the 5% scheme is the plan, remember that places, caps and lender acceptance are three separate hurdles; clearing one is not clearing all three. Run your own numbers in the borrowing power calculator and the HECS guide, then have the file checked properly before you fall for a property.