Westpac is dropping its floor rate for home loans next week, which will impact the serviceability assessment rates used for mortgages.
As of next Monday (30 September), Westpac will introduce new home loan serviceability assessment rates.
Following on from its July decision to reduce its interest rate floor for home loan serviceability assessments from 7.25 per cent to 5.75 per cent (and increase its buffer from 2.25 per cent to 2.5 per cent) off the back of the Australian Prudential Regulation Authority’s (APRA) decision to scrap its 7 per cent interest floor and raise its buffer to 2.5 per cent, Westpac has now revealed that it will drop its floor rate further.
From 30 September, the interest rate floor for home loan serviceability will fall from 5.75 per cent to 5.35 per cent.
As such, the serviceability assessment rate (SAR) will change.
Westpac advised that should a loan’s variable rate and the 2.5 per cent buffer equate to less than the 5.35 per cent floor when combined, then the floor rate would be used for the serviceability assessment.
However, should the variable rate and buffer be greater than the floor rate (5.35 per cent) when combined, then this figure would be used for the SAR instead.
The bank said that any applications that have been formally approved prior to Monday, 30 September 2019, will not be impacted by the change (unless a new credit decision is obtained).
Any pipeline applications that have not been formally approved by this date will be subject to the new SAR rule through ApplyOnline when the credit decision is run.
The change will apply for all Westpac Group brands (Westpac, Bank of Melbourne, BankSA, RAMS and St.George).
Speaking of the reduced floor rate, Westpac’s group general manager of home loans, Will Ranken, commented: “Westpac Group continually reviews its home loan products and services in line with market conditions and customer needs.
“Following careful consideration, we have decided to decrease the serviceability assessment floor rate from 5.75 per cent p.a. to 5.35 per cent p.a. for all Westpac Group brands.
“We are committed to helping customers into their homes, and this change may have a positive benefit for qualified borrowers looking to take out a loan for a property.”
This marks the second time Westpac has changed its floor rate since the APRA changes and brings the floor rate in line with that of Macquarie, which previously had the lowest floor rate of the main mortgage lenders.