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Gateway Bank has cut its interest rate floor for mortgage serviceability assessments from 7.25 per cent to 5.50 per cent and has increased its buffer rate from 2.25 per cent to 2.5 per cent.
The changes will apply to all new owner-occupier and investment home loan applications received from Monday, 26 August.
Gateway’s amendments have come in response to the Australian Prudential Regulation Authority’s (APRA) revised home lending guidance.
In early July, the prudential regulator scrapped its requirement for a 7 per cent interest rate floor and raised its recommended buffer rate from a minimum of 2 per cent to 2.5 per cent.
APRA chair Wayne Byres said that the regulator’s amendments were “appropriately calibrated”, stating that a serviceability floor of more than 7 per cent was “higher than necessary for ADIs to maintain sound lending standards”.
Gateway is the latest lender to make such changes, joining a host of other lenders, including the big four banks, who cut their interest rate floors to as low as 5.25 per cent.
Non-bank lender Resimac, although not officially bound by APRA’s guidance, has also adjusted its assessment rates, reducing its floor rate to 5.75 per cent and increasing its buffer rate to 2.5 per cent.
Several analysts have observed that the changes would help stimulate demand for credit and contribute to a recovery in the housing market by boosting borrowing capacity by up to 23 per cent.
However, speaking to the media following the release of the Commonwealth Bank of Australia’s (CBA) full-year results for the 2019 financial year (FY19), CEO Matt Comyn downplayed the stimulatory impact of APRA’s new guidance.
Mr Comyn stated that only some borrowers would benefit from the changes, claiming that 90 per cent of borrowers “don’t borrow at the maximum”.
The CBA CEO largely attributed the recently reported recovery in credit and housing market conditions to a general improvement in market sentiment.
[Related: CBA CEO downplays stimulatory effect of floor rate cuts]
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