CBA's tougher test for home buyers
The Commonwealth Bank has moved to tighten its home loan standards in a move that will inhibit home buyers pushing to their maximum borrowing capacity.
The bank has changed the home loan assessment floor rate used to assess home and investment home loan applications from 5.1 per cent per annum to 5.25 per cent per annum.
The serviceability floor rate is used by banks to judge whether borrowers can meet monthly mortgage repayments.
From Saturday CBA have the highest floor rate of the big four banks, according to RateCity.com.au, although the bank says currently 90 per cent of customers aren’t borrowing at capacity.
Westpac is at 5.05%, NAB at 4.95% and ANZ at 5.1%
“In delivering this change, we have taken into consideration the ongoing affordability for our customers during the life of their loan, as well as any potential changes the customer may incur,” CBA said. “This will ensure we continue to focus on delivering great customer outcomes.”
It advised while it was changing the home loan assessment floor rate, the interest rate buffer used on loans would remain unchanged at 2.5 per cent per annum.
Lenders are required by the Australian Prudential Regulation Authority to ensure that borrowers can repay loans at the higher of 2.5 per cent more than current interest rates, or the floor rate set by the bank.
The bank said it would honour existing applications where they convert to full applications within 90 days of the initial conditional approval, provided there were no major changes to the application.
The nation’s financial watchdogs have warned about increased risk-taking.
The value of new home loans with a debt-to-income ratio of six and over rose to $23.77 billion in March. This is an increase from 16.3 per cent to 19.1 per cent as a proportion of new lending year-on-year.
RateCity.com.au research director, Sally Tindall, said this move by the Commonwealth Bank would help protect people from overstretching themselves.
“This is a prudent and responsible move that will help ensure customers can afford their repayments when rate hikes kick in,” she said.
"We expect other banks will revise their floor rates upwards in coming months,” she said.