Westpac backtrack on lending serviceability loosening

Westpac backtrack on lending serviceability loosening
Westpac backtrack on lending serviceability loosening

Westpac has reinstated a key home loan lending restriction after APRA, the lending regulator, expressed concerns.

Westpac reportedly infuriated the prudential regulator after it released a handbrake on residential property lending that has been in place across all Australian banks since 2014.

A spokesman for the Australian Prudential Regulation Authority told the Australian Financial Review it was surprised a big four bank had lowered the serviceability floor before a consultation process designed to refine the standard had been completed.

"Authorised deposit taking institutions that are not following the current guidance must, through compensating controls, be able to demonstrate to APRA that they are continuing to lend prudently," the APRA spokesman said.

Although APRA's prudential standards are legally enforceable, the regulator's guidance is not.

Westpac's pitch for new low risk business would have increased the borrowing capacity of home buyers paying principal and interest by as much as 10 per cent.

A month ago, APRA flagged removing the 7.25 per cent serviceability floor and replacing it with a flat 250 basis points buffer in a letter to all Australian banks.

The regulator introduced the serviceability buffers in 2014. 

Westpac had moved to relaxed the serviceability conditions advising its credit officers would 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.

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.

Westpac Mortgage Serviceability

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