Major bank slashes floor rate

ANZ has announced that it will decrease its interest rate floor for home loan serviceability assessments from 5.5 per cent to 5.25 per cent.

The changes, which will be effective for all applications from Monday, 17 February, have come in response to the Australian Prudential Regulation Authority’s (APRA) decision to scrap its 7 per cent interest floor and raise its sensitivity buffer to 2.5 per cent.

ANZ was the first major lender to implement the changes in July last year, when it reduced its interest rate floor for home loan serviceability assessments from 7.25 per cent to 5.5 per cent. It also increased its sensitivity buffer from 2.25 per cent to 2.5 per cent.

In the latest update to brokers, ANZ said its sensitivity margin remains at 2.5 per cent.

In explaining the reason behind the change in its floor rate, ANZ said: “To ensure ANZ remains in line with community expectations by applying appropriate tolerances when assessing serviceability, ANZ has reviewed the floor rate used for calculating serviceability.”

“As a result, ANZ will reduce the minimum floor rate to 5.25 per cent.”

The bank said all new and existing applications for residential lending will have the new floor rate applied as part of the home loan assessment process. The new floor rate will apply to:

• ANZ home loans
• ANZ residential investment loan
• ANZ Simplicity Plus Home Loan
• ANZ Simplicity Residential Investment Loan
• ANZ/OFI Line of Credit (limit)
• Other financial institution (OFI) home or investment loan facilities

ANZ has joined the Commonwealth Bank of Australia, Auswide, Heritage Bank and Westpac in revising its serviceability rates twice in response to APRA’s changes to its home lending guidance.

In a new piece of analysis of trends underpinning the Australian housing market, ING Economics’ chief economist and head of research, Asia Pacific, Robert Carnell, observed a shift in the housing market conditions since the Reserve Bank of Australia (RBA) began its monetary policy easing strategy in June 2019.

He said that while monetary policy may have lost some of its ability to stimulate the economy, the housing market “remains sensitive” to interest rates and has seen a resurgence due to the RBA’s cuts in June, July and October, and acknowledged concerns the housing recovery may be showing early signs of a new boom.

However, he said that while the current housing recovery is unlikely to dissuade the RBA from its easing strategy, it may persuade APRA to introduce new macro-prudential lending curbs.

According to the latest data from property research group CoreLogic, national home values have now risen by 4 per cent in the three months ending December 2019, driven by Sydney and Melbourne, where values increased by 6.2 per cent and 6.1 per cent, respectively, over the same period.

[Related: BOQ, Virgin Money slash serviceability rates]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.