Why getting a CBA home loan just got easier

CBA reduces threshold that is the basis for assessing a borrowers’ ability to repay a home loan.

CBA is the first of the big four to announce a second reduction. Picture: AAP

Commonwealth Bank of Australia will cut a key loan serviceability measure for a second time since the banking regulator scrapped its official threshold in July.

The threshold is the basis for assessing a borrowers’ ability to repay a home loan.

CBA is decreasing its serviceability floor rate to 5.40 per cent, effective November 9, from 5.75 per cent currently. An interest rate buffer that is added to a borrowers home loan rate to ensure they can repay their mortgage of 2.5 per cent stays the same, CBA said.

CBA is the first of the big four to announce a second reduction, after the Australian Prudential regulation Authority in July said it was removing a 7 per cent interest rate threshold for banks when they make home loan serviceability assessments. The banks added another 25 basis points to that for good measure, effectively making the threshold 7.25 per cent.

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APRA also advised banks in July to increase their home loan serviceability buffer to 2.5 per cent from 2.25 per cent.

“In delivering this change we have ensured we continue to meet our regulatory commitments, while remaining focused on delivering great customer outcomes and supporting the Australian economy,” a Commonwealth Bank spokesperson on Thursday.

APRA made the change to its guidance in July as official interest rates were at 1 per cent, and the measure 7.25 per cent threshold became increasingly irrelevant. The cash rate now sits at a new record low of 0.75 per cent.

Building in a higher rate to a loan assessment gives the banks comfort a loan can be repaid if interest rates start to rise. APRA’s loosening of the serviceability rules will allow some consumers to borrow larger amounts and will boost the numbers of borrowers that can be approved for finance.

National Australia Bank’s moves on the serviceability threshold in July mirrored a cut by ANZ to 5.5 per cent, while Westpac’s adjustment was in line with CBA’s initial reduction to its serviceability threshold.