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Major bank pre-empts APRA’s home lending reforms

A big four bank has eased its serviceability requirements for low-risk home loan customers, in a move that would provide its credit officers with the power to “override” serviceability deficiencies.

Westpac has confirmed* that it has updated its approach to assessing home loan applications for “some” new owner-occupied customers paying principal and interest for an "interim period only". 

The changes will enable Westpac’s credit officers to use their discretion when assessing a mortgage application from a borrower that falls short of passing the bank's serviceability test, which is currently weighted against an interest rate floor of 7.25 per cent. 

A Westpac spokesperson told Mortgage Business: “Where a customer applying for an owner-occupied, principal and interest loan falls just outside our current serviceability guidelines, the loan can be referred to a credit officer who will have the discretion to override a small serviceability deficiency on a case-by-case basis.”

The revision has come in lieu of the Australian Prudential Regulation Authority’s (APRA) proposed changes to its home lending guidelines.  

In March, APRA opened consultation on its proposal to scrap the 7 per cent interest rate floor used to assess mortgage serviceability and increase its interest rate buffer to 2.5 per cent.

APRA chair Wayne Byres said that the operating environment for ADIs had evolved in the past decade, prompting the regulator to review the ongoing appropriateness of the current guidance.

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“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so,” he said.  

“In addition, the introduction of differential pricing in recent years – with a substantial gap emerging between interest rates for owner-occupiers with principal and interest loans on the one hand and investors with interest-only loans on the other – has meant that the merits of a single floor rate across all products have been substantially reduced.”

In response to APRA's initial announcement, a Westpac spokesperson told Mortgage Business’ sister publication, The Adviser: “Westpac welcomes APRA’s consultative process. 

“Westpac recognises that it’s our responsibility to find the right balance that appropriately supports customers to buy homes and protects the quality of the bank’s mortgage book.”

The consultation period for APRA’s proposal closed on 18 June, but the prudential regulator is yet to issue its response to submissions from lenders and industry stakeholders.

*Editor’s note 21/06/2019: Westpac suspended this measure less than a day after confirming to Mortgage Business that they were in effect

[Related: APRA revises proposed regulatory changes for mortgage lending]

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