Australian banks begin lowering mortgage stress test rates

[SYDNEY] Westpac Banking Corp and Australia and New Zealand Banking Group are starting to lower the interest rate they use to stress tests customers' loan applications, a move expected to help stabilise house prices.

The banks are the first two of the Big Four lenders dominating Australia's banking system to implement the loosening of mortgage lending rules, introduced by the prudential regulator earlier this week.

From Tuesday, Westpac now assesses the serviceability capacity of its customers using the lower of 2.5 per cent over its lending rate, or a minimum 5.75 per cent floor test, according to its website.

That compares with a 7.25 per cent minimum testing rate the banks used before the regulator removed the mandated floor.

The Australian Prudential Regulation Authority (APRA) earlier this month scrapped the minimum testing rate as it added to the stimulatory tools being deployed to revive the country's sluggish economy.

ANZ told clients on Friday that its new floor rate for retail lending would fall to 5.50 per cent from Monday, according to a marketing memo seen by Reuters.

A spokesman for Commonwealth Bank of Australia said the bank was in the process of reviewing its own testing rate, while representatives from National Australia Bank did not return an emailed request for comment.

Following a protracted property downturn, the Reserve Bank of Australia (RBA) on Tuesday said house prices were now stabilising and APRA's credit easing measure was "likely to see a boost in borrowing capacity for many new borrowers", its July policy meeting minutes showed.

The central bank, however, said it does not expect a material pick-up in borrowing.

The move means that borrowers applying for home loans carrying variable loan rates of about 3.5 per cent will now be tested on their ability to repay a loan carrying 6 per cent interest - that is 1.5 percentage points lower than before.

According to analysts, every 1 per cent drop lets homebuyers borrow up to 10 per cent more. 

REUTERS