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Bank cuts floor rate, amends HEM policy

A non-major has slashed its floor rate and revised its HEM policy for home loan serviceability assessments.

Customer-owned bank Newcastle Permanent has slashed its interest rate floor for mortgage serviceability assessments from 5.7 per cent to 5.3 per cent.

The lender has also reduced its assessment rate for sensitised loan repayments on line of credit facilities, from 6.3 per cent to 5.9 per cent.

The changes will apply to all applications assessed from Friday, 14 February.

Newcastle Permanent joins ANZ, the Commonwealth Bank of AustraliaAuswideHeritage Bank and Westpac in revising their serviceability rates twice in response to the Australian Prudential Regulation Authority’s (APRA) changes to its 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 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” in light of mortgage rate reductions following the Reserve Bank of Australia’s (RBA) cuts to the cash rate.

Following the bank’s decision, Newcastle Permanent CEO Bernadette Inglis said: “In line with the regulator’s revised guidance on interest rate floors, we’ll now assess home loan applications in line with a serviceability buffer of 2.5 per cent and, where applicable, against the new serviceability rate floor of 5.3 per cent, which is representative of the broader market in this low rate environment.”

The customer-owned lender has also revised its HEM policy, also effective for home loan assessments from 14 February.

Newcastle Permanent previously calculated HEM data on a minimum HEM floor income band of $50,000 to $60,000, even if an applicant’s income was below the minimum band.


However, the floor income bank has now been removed, with HEM to be calculated based on the level of the borrower’s income.

Newcastle Permanent’s policy changes follows the news earlier this month that the lender is in the process of remediating approximately 18,000 customers who were overcharged interest on their home loan.  

According to the lender, after undertaking a periodic review of its processes, it identified that an “error” had resulted in customers’ offset transaction accounts “not properly linked” to their home loans.  

Newcastle Permanent self-reported the issue to the Australian Securities and Investments Commission.

The lender apologised to customers for the error, adding that it would continue working to determine if other mortgage-holders are eligible for remediation.

 [Related: Lender remediates 18,000 mortgage customers]

Bank cuts floor rate, amends HEM policy

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.

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