NAB the next bank to cut home loan stress testing

afr.com:

National Australia Bank has become the third major bank to say it is willing and prepared to make some exceptions to strict stress-testing standards for borrowers looking to refinance their mortgage.

In an email to bankers and brokers on Thursday afternoon, obtained by The Australian Financial Review, NAB said it would soon be “refreshing our existing approach to support eligible refinance customers switch” lenders.

Refinancing applicants will have to have a “good repayment history”, and NAB warned it would only extend the loan terms “where appropriate”. Bloomberg

The changes, which will apply from July 21, will apply to borrowers “who are considered a good credit risk, but may not fully meet standard lending criteria, including serviceability buffers”. However, the extent to which NAB is prepared to make exceptions will be assessed on a “case-by-case” basis.

The serviceability buffer is a regulator-enforced standard forcing lenders to review the ability of borrowers to repay their home loan at interest rates 3 per cent over the market rate. NAB’s basic variable home loan rate is 6.24 per cent, so it would assess if potential borrowers can repay at 9.24 per cent.

However, this will change for borrowers who have greater than 20 per cent equity in their home, have a principal and interest loan, and only refinance the amount outstanding on their loan.

Refinancing applicants will also have to have a “good repayment history”, and NAB warned it would only extend the loan terms “where appropriate”.

Despite the Australian Prudential Regulatory Authority writing to banks to remind them that the buffer is in place to protect from economic uncertainty, and the Council of Financial Regulators deeming the current level “appropriate”,