Powered by MOMENTUM MEDIA
subscribe to our newsletter

Bankwest cuts serviceability assessment rate

The non-major is the latest lender to announce changes to its home lending policy, amid a wave of revisions that could increase borrowing capacity by up to 23 per cent, according to a new analysis.

In response to the Australian Prudential Regulation Authority’s (APRA) changes to its home lending guidance, Commonwealth Bank subsidiary Bankwest has lowered its interest rate floor for mortgage serviceability assessments from 7.25 per cent to 5.75 per cent and increased its interest rate buffer from 2.25 per cent to 2.5 per cent – in line with its parent company.

The non-major’s changes are effective for all new home loan applications submitted from Thursday, 25 July.

Bankwest joins the likes of ANZWestpac, the Commonwealth BankNABMacquarie, Suncorp, MyState BankBendigo and Adelaide Bank, the Bank of Sydney, Auswide Bank, Teachers Mutual Bank and Advantedge, who have dropped their interest rate floors to as low at 5.3 per cent.

All the aforementioned lenders have also increased their buffer rates to 2.5 per cent, as per APRA’s guidance.

Advertisement
Advertisement

Borrowing capacity to rise by up to 23 per cent

According to a new analysis from Moody’s Investors Service, changes to APRA’s mortgage serviceability guidance would stimulate growth in the home lending space.

Moody’s observed that with most ADI’s having reduced their interest rate floors to between 5.3 per cent and 5.75 per cent, borrowing capacity could increase by between 17-23 per cent on a standard 30-year principal and interest home loan.

The ratings agency added that when incorporating the 2.5 per cent rate buffer, borrowing capacity would increase by approximately 14 per cent on a 30-year principal and interest mortgage with a 3.5 per cent interest rate.

Moody’s added that a rise in demand for housing finance would place upward pressure on house prices, which would in turn, reduce negative equity risk.

PROMOTED CONTENT


“[The] increased borrowing power of home buyers will support house prices and give existing borrowers more refinancing options, which will reduce the risk of losses in outstanding RMBS,” the ratings agency stated.

However, Moody’s claimed that the serviceability changes would “increase risks for new mortgages”, with borrowers taking on larger loan sizes.   

Moody’s Investors Service also flagged risk associated with a rise in demand from investors, stating that lower interest rate floors would “amplify” property speculation.

According to Moody’s, an increase in the share of housing investment loans in RMBS portfolios would be “credit negative”, adding that housing investment loans are “riskier” than owner-occupier mortgages.

Moody’s concluded: “The increase in investor borrowing capacity, combined with better housing market sentiment, could increase investor participation in the housing market over the next several years.

“The share of housing investment loans to total mortgages has declined to 29.4 per cent in March 2019 since its peak in June 2015, but this trend could reverse if the improving sentiment translates into greater housing demand.”

[Related: Lenders continue easing serviceability policies]

 

Bankwest cuts serviceability assessment rate
Bankwest and Moody's
mortgagebusiness

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

The CEO of Aussie Home Loans, James Symond, has forecast that broker market share will hit 70 per cent in the next five years, as more consu...

The Queensland government and lenders have begun offering financial assistance to those affected by Cyclone Niran in Queensland. ...

The technology company has launched a new fund designed to invest in technology scale-ups that are aiming for exponential growth. ...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: How the broking industry has evolved - and what's next for Aussie

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.