Australia’s biggest bank will force borrowers to prove they can afford even more expensive repayments amid growing concerns of risky lending.
CommBank announced the decision to increase its serviceability rate from 5.10 percent of 5.25 per cent on Friday.
That means borrowers need to prove they would be able to maintain their repayments even if the interest rate went as high as 5.25 per cent. The national cash rate is currently at an all-time low of 0.1 per cent.
CommBank’s latest move means its serviceability rate is now the highest of the big four banks.
The latest APRA statistics also show that the value of new mortgages with debt-to-income ratios of six and above has risen to $23.77 billion as of March. That reflects 19.1 per cent of the total market, up from 16.3 per cent at that time last year.
“This is a prudent and responsible move that will help ensure customers can afford their repayments when rate hikes kick in,” RateCity research director Sally Tindall said.
“Families who overstretch themselves to get into an overheated property market, could end up in hot water when rates go up, especially if they haven’t had a decent pay rise in that time. Banks want to avoid this situation as much as customers do.
“While this change could limit the amount some customers can borrow, it’s designed to save them from mortgage stress in years to come.”
She said other banks will likely begin to increase their serviceability thresholds in the coming months as they also aim to limit risky loans.
“CBA’s floor rate increase shows the bank is taking its responsible lending obligations seriously and that these obligations are important to make sure people borrow within their means,” she said.