Commonwealth Bank lowers assessment rate for home loan customers

A BANK has become the first to loosen the ‘stress testing’ interest rate used to determine whether customers can meet a mortgage.

THE nation’s biggest bank has lowered the “stress testing” interest rate used to determine whether customers can service a mortgage despite all the other big banks keeping theirs tight.

The Commonwealth Bank has dropped its home loan assessment rate — the interest rate used to work out whether a customer can service the debt of the home loan if rates do rise. Last year that serviceability rate was 7.4 per cent; this year that rate is 7.25 per cent.

The analysis from mortgage broking firm Home Loan Experts showed the drop to assessment rates applies to both owner occupiers and investors and comes despite the regulatory crackdowns on home lending.

However CBA has recently tightened other serviceability requirements including only allowing maximum loan-to-value borrowings of 95 per cent for owner occupiers.
It had previously allowed borrowings of up to 97 per cent including the cost of mortgage insurance.

Home loan

The Australian Prudential and Regulation Authority in December warned banks that investment lending annual growth above 10 per cent would be put under the microscope.

The National Australia Bank has maintained its stress test rate at 7.4 per cent for several years while the ANZ has a stress test rate at 7.23 per cent.

Westpac’s is 7.1 per cent, increasing from 6.8 per cent in 2014.

Data from financial comparison site Finder.com.au shows the average standard variable interest rate on a $300,000 30-year home loan is 5.4 per cent and the monthly repayments are $1685.

The average three-year fixed rate is 4.79 per cent.

1300homeloan director John Kolenda said the difference in what borrowers offer customers can vary by tens of thousands of dollars.

“For someone on $75,000 a year the difference in borrowings from one lender to another lender could be over $80,000 difference,’’ he said.

Residential property prices across the nation’s eight capital cities were up by 6.9 per cent for the year to March.

The soaring prices in Sydney and Melbourne have also continued to push out entry-level buyers — Sydney prices rose by 13.1 per cent in the same period while in Melbourne they climbed by 4.7 per cent.

Finder.com.au spokeswoman Michelle Hutchison said it pays hunting to see what loan sizes you can get from different banks.

Finder.com.au spokeswoman Michelle Hutchison said home loan customers should also go to multiple banks to find out how much they can borrow from different financial institutions.

“Potentially you could borrow more money from a particular lender because they use a particular lending criteria to assess how much you can afford,’’ she said.

“It’s worth shopping around to find out how much each lender you are interested in borrowing from will offer you.”

Originally published as Commonwealth Bank lowers assessment rate for home loan customers