(Reuters) -Commonwealth Bank of Australia on Wednesday cut its buffer rate for some borrowers refinancing their existing home loan to 1% from the industry standard of 3%, providing relief to many clients who would otherwise fail to qualify due to high interest rates.
The country’s prudential regulator advises lenders to refinance home loans only if they believe the customer could repay at 3% higher than current market rates.
While CBA’s alternate buffer is not in line with the regulator’s recommendation, it does not break the serviceability buffer, the regulator said, as it allows exceptions to the policy but warns against high volumes.
CBA has a quarter of the Australian mortgage market, where thousands of borrowers are expected to end their fixed rate loans this year, forcing them to shop around for new loans at current rates.
The Australian Prudential Regulation Authority (APRA) in a letter earlier this month said banks could face heightened supervisory attention if they report large volumes of policy exceptions which could pose risks to the banks’ loan books.
Starting Friday, CBA will allow select customers who meet some “strict eligibility criteria” to refinance their loans if they are capable of repaying at 1% above current market rates, the bank said, adding that a track record of no missed payments for at least a year was among several criteria for customers to be considered eligible.
“We know that due to the current interest rate environment some home owners are facing challenges refinancing their home loans so we are introducing an alternate interest rate serviceability buffer,” CBA’s Michael Baumann, executive general manager home buying said.
Westpac Banking Corp, the country’s second-biggest mortgage provider, also offers modified serviceability assessment rate to customers unable to meet the industry standard.
The Reserve Bank of Australia has raised interest rates by 400 basis points to an 11-year high of 4.1% since May last year.
(Reporting by Sameer Manekar in Bengaluru and Byron Kaye in Sydney ; Editing by Nivedita Bhattacharjee)
