Central Bank tightens assessment of housing loans to appease APRA

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Most loans are valued using a buffer rate. The CBA’s standard variable rate is 4.27%: adding 2.5% to it means that many clients are being assessed as to whether they can pay the 6.77% annual interest rate.

The central bank said many of its borrowers were unable to – and it expected that only about 1.3% of new home loan applications would be processed by a higher-level service.

“We took into account the current availability for our clients during the term of their loan, as well as any potential changes that the client may suffer,” the email said to the mortgage brokers.

The CBA grew in mortgages much stronger than its peers, about three times faster than the system average. The CBA’s minimum home loan rate is currently higher than three other large banks – ANZ – 5.1%, Westpac – 5.05%, and NAB – 4.95% – which are also considering how to respond to the APRA letter. as reported by the Board of Financial Regulators (CFR) on Thursday, which asked the boards of directors of large banks we promise that they comply with lending standards.

The CFR also requires banks to pay attention to high levels of household debt, as well as “policy options” that could be used to address these risks.

The top floor could reduce the creditworthiness of a $ 500,000 loan by about $ 7,500.

This was announced on Thursday by RBA Governor Philip Lowe. that future potential macroprudential policy options explored by APRA include constraints on debt-to-income and loan-to-value ratios, or stricter rules for interest rate lending and investor lending. Dr. Lowe said that “we are not yet at the stage where we are actively considering the possibility of implementing any initiatives in this area.”

The CBA received a higher floor after APRA sent a letter to major banks “to ensure that they actively manage risks within their home loan portfolios and will pay particular attention to lending standards and risk appetites of lenders,” the quarterly said. CFR report. Thursday.

Westpac chief economist Bill Evans said Friday that he expects the Reserve Bank to start raising rates in the first quarter of 2023.

RateCity pointed to APRA statistics showing that the cost of new home loans with a debt-to-income ratio of six or more rose to $ 23.77 billion in March, or 19.1 percent as a share of new lending, up from 16.3 percent a year. earlier. …

In anticipation of a rise in interest rates in 2023, banks raised rates on fixed-rate home loans for three and four years. Central Bank rose 5 basis points in May after adding 20 basis points to four-year fixed rate in March

“The CBA’s minimum rate hike shows that the bank is serious about its commitment to responsible lending and that these commitments are important to ensure that people borrow within their funds,” said Sally Tyndall, research director at RateCity.

A CBA spokesman said the top floor is part of “regular monitoring and review of our policies and services,” and the top floor “to ensure that we continue to lend responsibly in the current low interest rate environment.”

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