Effective from 9 October, Westpac and its subsidiaries (BankSA, Bank of Melbourne and St.George) have dropped their floor rates by 25 basis points.
A new floor rate of 5.05 per cent per annum (pa) will apply for all mortgage applications submitted to the banks as of Friday, 9 October.
A buffer of 2.50 per cent will remain in place.
The changes will impact the serviceability assessment rate (SAR) that is used for serviceability assessments.
If the variable rate of the proposed loan plus the interest rate buffer of 2.50 per cent pa is less than the floor rate, then the floor rate will be used as the SAR.
However, if the variable rate and 2.5 per cent buffer is greater than the floor rate, then the rate on the loan plus the interest rate buffer will be applied as the SAR.
If a pipeline application had been submitted before this date, but not formally approved, the new floor rate will be used when the credit decision is run.
Any applications formally approved before last Friday (9 October) will not be impacted unless a credit decision is obtained again.
Westpac is the latest lender to adjust its serviceability rates to ensure its policy better reflects the record-low interest rate environment. AMP Bank adjusted its floor last month, too.
The moves come after the Australian Prudential Regulation Authority (APRA) scrapped its 7 per cent interest rate floor requirement in July 2019 after acknowledging that its home-lending guidance was “higher than necessary for ADIs to maintain sound lending standards”.
ADIs are now permitted to review and set their own minimum interest rate floor for use in serviceability assessments and utilise a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.
The banking group has also pulled back some of its lending restrictions that were brought in earlier this year to “ reduce risk for home loan applicants in some industries and areas”.
The banks are now reinstating their LMI fee waiver for 90 per cent loan-to-value ratio (LVR) for sports and entertainment and industry specialisation sector packages.
LMI fee waivers will also be available for new owner-occupier and investor home loans for certain qualifying medical professionals who are eligible for the medico sector policy with a maximum LVR of 90 per cent.
Likewise, the group will remove the maximum LVR limit for self-employed owner-occupiers and investor home loans, with higher LVR with lender’s mortgage insurance now available.
Westpac has also said that it is removing the maximum 70 per cent and 80 per cent LVR limits on all COVID-19 tourist postcodes for owner-occupier and investor loans.
Applications in the pipeline are also eligible for these policy changes.