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Keystart revises serviceability rates

The government-backed lender has announced changes to its mortgage serviceability assessment policy, in line with APRA’s new guidance.

Western Australia-based lender Keystart has lowered its interest rate floor for home loan serviceability assessments from 7.25 per cent to 6.50 per cent and increased its buffer rate from 2 per cent to 2.5 per cent, effective immediately.

The revisions 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”.

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Keystart 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.  

The latest data from the Australian Bureau of Statistics revealed that the value of mortgages approved in July rose 5.1 per cent to $17.8 billion – the largest monthly increase since March 2015.

 [Related: FHB approvals hit 10-year high]

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