Westpac to Apply Tougher Tests to New Property Investor Borrowers
Westpac to Apply Tougher Tests to New Property Investor Borrowers

Westpac, an Australian bank and financial-services provider, is going to apply tougher tests to new property investor borrowers while assessing how they would manage with higher interest rates in response to regulators' attempts to prevent the housing market from overheating.

The bank is also tightening its lending to foreign investors in housing because banks have pressure to slow the booming growth in investor home loans. The country's second-largest bank provided information about how the Australian Prudential Regulation Authority's actions to slow investor credit growth are affecting bank lending practices.

When banks give loans to customers, they test how a borrower would fare if interest rates increase from today's very low levels. Earlier, Westpac's scenario testing had included assessing how investor borrowers will manage if mortgage interest rates increased to 6.8% and that is up from about 5% today. Now, it is going to test that how borrowers would manage if interest rates climb to 7.1%.

"We had been using a buffer in that case of 180 basis points, we've lifted that to 210 basis points", said Westpac chief executive Brian Hartzer.

The policy alterations are response to APRA's warning to banks in December that they could be asked to run larger capital buffers except they slow investor credit growth below 10% a year. Mr. Hartzer said that APRA's been in talks with the entire industry about this.

Westpac is also launching an interest rate 'floor' under how low the rates that it makes use of in its borrower stress-testing can fall and this floor will be 7.1%. If the Reserve Bank reduces official rates even lower, all investor borrowers looking for a loan should convince the bank that they would manage if their interest rates increase to 7.1%.




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