First lender out of the block, ANZ announced today they are changing the assessment rate.
Today ANZ informed the market that effective 15 July 2019, ANZ will amend the assessment rate and Sensitivity Margin used for retail lending.
The current ANZ assessment rate of 7.25% will be amended to 5.50% and the Sensitivity Margin that is currently 2.25% will be changed to 2.50%.
For applications in progress:
- For new applications that have not been assessed on or after the effective date, the new policy will be applied.
- For applications in AST/AIP on the effective date, and the customer is seeking an Increase or Credit Critical changes the new policy will apply.
- For applications in AST/AIP on the effective date, and are satisfying outstanding conditions the previous policy and process will apply.
- If an application is declined or has expired and is resubmitted on or after the effective date, the new policy will apply.
Why is this happening?
APRA after review concluded that a fixed assessment rate (usually around 7.25%) does not make sense in the current mortgage environment. It makes more sense to have a fixed buffer (2.50%) on top of the actual rate. So they wrote to the banks advising them they were allowed to change the way mortgage affordability was assessed (as long as other policies were adhered to)
What does this mean?
Affordability should increase for most borrowers. Instead of checking your loan is affordable at an interest rate of 7.25%, the banks will check if your loan is affordable at a rate of 5.50%. On a $500,000 mortgage that difference is $833 per month. Not in actual repayments but on paper. By checking your expenses and factoring in the mortgage you are applying for you now have $833 LESS to pay every month.
If you are an investor it means a property that was out of reach in the past, might now be affordable as far as the bank is concerned.
What is next?
Other banks will follow soon. As all the lenders are very keen to get more business in the door, I suspect it won’t be long before they will all change their policy around their assessment rate.