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Bluestone lowers serviceability buffer

The mortgage lender has lowered its serviceability buffer from 2 per cent to 1.5 per cent for certain borrowers, in a bid to help more broker clients access finance.

Bluestone Home Loans has dropped its serviceability buffer for near prime and prime loans with up to 70 per cent LVR from 2 per cent to 1.5 per cent.

According to the lender, the move aims to “deepen its commitment” to non-standard borrowers, by “stepping up to meet the challenge that brokers often find in placing clients with unique and diverse lending criteria”.

The non-bank added that self-employed borrowers, in particular, were often underserved by the mainstream lenders, which typically have ‘one-size-fits-all’ serviceability requirements.

As such, it noted that brokers can struggle to find solutions for these clients due to serviceability barriers.

This was despite the self-employed and near-prime segment being a growing market, as more people diversify their income streams, become their own bosses, and seek to control their own working environments.

It said its decision to drop its buffers for these segments showed that it was “making a serious play at this growing market by positioning itself as the lender of choice for brokers with non-standard clients”.

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“Big banks have long considered these [customers] too difficult and both brokers and their clients have suffered as a result,” Bluestone’s chief commercial officer Tony MacRae said.

“Our stated goal is to be the go-to lender for brokers with non-standard clients and this change in our serviceability buffer is just the latest in our policy changes that work towards that end.

“Brokers work with non-standard customers. We want to be the ‘go-to’ non-standard lender who recognises that.”

APRA reminds banks to include 3% buffer as standard

Bluestone’s decision to drop its buffer for certain borrowers came as more borrowers find it hard to pass servicing tests.

Given the official cash rate has risen by more than 400 bps in the past 18 months, the large proportion of borrowers who took out super low fixed rates during the pandemic may now find themselves unable to pass the hurdle.

Several lenders had begun reducing buffers for borrowers earlier this year, particularly for ‘vanilla’ borrowers or where certain criteria were met.

However, the prudential regulator reiterated its stance that banks should be applying a 3 per cent buffer to home loan servicing earlier this week.

Currently, the prudential regulator expects banks to apply a 3 percentage point buffer on top of home loan rates when servicing mortgage customers, as standard.

For example, a borrower rolling off a 2.5 per cent fixed-rate loan would need to be able to service a 9.5 per cent loan based on the banks applying a 3 percentage point buffer being applied to the current average variable rate of 6.5 per cent.

According to the Australian Prudential Regulation Authority (APRA), it has decided to maintain the mortgage serviceability buffer for banks at 3 percentage points to ensure “prudent lending standards”.

This buffer will remain crucial as a safety net for new borrowers confronting risks amid potentially weaker labour market conditions, according to APRA.

The decision was influenced by persistently high inflation and the likelihood of further increases in borrowing rates, coinciding with the Reserve Bank of Australia’s series of cash rate hikes in 2023, reaching 4.35 per cent, with more anticipated in 2024.

Additionally, APRA considered the capital levels on bank balance sheets and the anticipated performance of their lending assets.

APRA chair John Lonsdale commented: “The mortgage serviceability buffer has proved to be effective over the past 18 months; housing loan performance has remained sound while households have had to contend with cost-of-living pressures, including the increase in borrowing costs.”

Several members of the broking industry have suggested that many good borrowers have been left out in the cold as a result of the buffer tests.

Even borrowers with a $100,000 salary may find it challenging to enter the market presently.

[Related: APRA holds 3% serviceability buffer]

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