Westpac immediately relaxes serviceability conditions on low risk owner occupier home loans

Westpac has relaxed the serviceability conditions on low risk owner occupier home loans, immediately increasing the borrowing capacity by as much as 8 percent. 

A spokesman for Westpac confirmed the policy change with The Australian Financial Review today.

Its credit officers would now have the discretion to approve principal and interest loans to owner occupiers who previously fell just outside lending parameters.

"We have recently updated our approach to assessing some new owner occupier principal and interest home loan applications for an interim period only," the spokesman said.

Select mortgage brokers have been informed by Westpac-owned St George Bank the serviceability floor has been reduced to 6.5 per cent from 7.25 per cent effective immediately.

The changes are not available to investors or owner-occupiers with interest only loans.

It comes after APRA, the prudential regulator wrote to the banks and proposed removing the floor saying it had outlived its usefulness, however, it is yet to officially announce a change to the guidelines on the minimum interest rate a borrower must be capable of paying should rates rise.

APRA chairman Wayne Byrnes said in a letter dated May 21 the gap between the 7.25 per cent buffer and the rates on offer had become "unnecessarily wide" with low risk borrowers were being disadvantaged.