Westpac cuts mortgage floor rate

John Kavanagh

Westpac cut its mortgage serviceability floor rate on Friday, reducing it from 5.35 per cent to 5.05 per cent. Its floor rate is now the lowest among the big banks.

According to comparison site RateCity, ANZ’s floor rate is 5.25 per cent, Commonwealth Bank’s 5.4 per cent, NAB’s 5.5 per cent.

RateCity also reported that Westpac is winding back a couple of temporary COVID-19 measures. It is reinstating a lenders mortgage insurance waiver for certain professions on loans with loan-to-valuation ratios up to 90 per cent.

As an LMI self-insurer, Westpac appears to have greater flexibility in setting its LMI policies. In July, its subsidiary St George Bank cut the LMI premium for first home buyers with a deposit of at least 15 per cent to just $1.

Westpac ended its relationship with lenders mortgage insurer Genworth in 2015, opting to cover loans with LVRs between 80 and 90 per cent using its own insurance arm and using Arch Capital Group for loans with LVRs above 90 per cent.

Westpac is also removing LVR ratio limits for self-employed applicants and those from certain tourist postcodes.

Banks have used serviceability floors and interest rate buffers since 2014, when APRA introduced a floor rate of 7 per cent (which was 7.25 per cent in practice) and a buffer of 2.25 per cent.

When assessing a loan application, the lender had to calculate the borrower’s ability to service the loan if the interest rate were to rise by 2.25 per cent or went to 7 per cent.

In 2019, APRA removed the 7 per cent rule, allowing lenders to set their own floors, and increased the buffer to 2.5 per cent.

Westpac’s decision will give borrowers more capacity. The changes also apply to its subsidiaries St George Bank, Bank of Melbourne, BankSA and Rams.