The Westpac group lowers its floor rate

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The big bank and its subsidiaries lowered the floor rate on mortgages and reinstated some offers that had been suspended due to COVID-19.

As of October 9, Westpac and its subsidiaries (BankSA, Bank of Melbourne and St. George) lowered their floor rates by 25 basis points.

A new floor rate of 5.05% per annum (pa) will apply to all mortgage applications submitted to banks as of Friday, October 9.

A 2.50 percent buffer will remain in place.

The changes will impact the Feature Rating Rate (SAR) used for feature ratings.

If the variable rate of the proposed loan plus the 2.50 percent per annum interest rate cushion is less than the floor rate, then the floor rate will be used as the SAR.

However, if the variable rate and the 2.5% cushion are greater than the floor rate, the loan rate plus the interest rate cushion will be applied as SAR.

If a pipeline request has been submitted before this date, but has not been formally approved, the new floor rate will be used when executing the credit decision.

Applications formally approved before last Friday (October 9) will not be impacted unless a credit decision is obtained again.

Westpac is the latest lender to adjust its service rates to ensure that its policy better reflects the record interest rate environment. AMP Bank adjusted its floor last month, too much.

The measures come after the Australian Prudential Regulation Authority (APRA) discarded its demand for a floor interest rate of 7% in July 2019 after admitting that its home loan forecast was “higher than necessary for IDAs to maintain sound lending standards.”

ADIs are now allowed to review and set their own minimum interest rate for use in viability assessments and use a revised interest rate cushion of at least 2.5% on the interest rate of the loan.

Policy changes

The banking group has also lifted some of its credit restrictions which were introduced earlier this year to “reduce the risks for applicants for mortgage loans in certain sectors and areas”.

Banks are now reinstating their LMI fee exemption for a 90 percent loan-to-value ratio (LVR) for sports and entertainment and industry specialization packages.

LMI fee waivers will also be available for new homeowner and investor home loans for certain qualifying healthcare professionals who are eligible for the medical sector policy with a maximum LVR of 90 percent.

Likewise, the group will remove the maximum LVR limit for independent owner-occupiers and investor home loans, with a higher LVR with lender’s mortgage insurance now available.

Westpac also said it was removing the 70% and 80% LVR maximum limits on all COVID-19 tourist postal codes for homeowner and investor loans.

Current applications are also eligible for these policy changes.

[Related: Westpac announces executive retirement, reshuffle]

Westpac group lowers its floor rate

mortgage company

Last updated: October 11, 2020

Posted: 12 October 2020

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