From Thursday, Suncorp is increasing the buffer rate from 2.25 per cent to 2.5 per cent and lowering the floor rate from 7.25 per cent to 5.5 per cent.
From Friday, Suncorp will be decreasing all variable home loan interest rates by 19 basis points.
It is also decreasing all variable super offer discounts by 1 basis point to take the effective change to 20 basis points. A range of fixed rate specials are also being reviewed.
Other major lenders, including Commonwealth Bank of Australia, the nation’s largest lender, and National Australia Bank, are finalising their response to the latest round of lender changes with changes expected in coming days.
Lenders are combining different mixes of regulators’ new serviceability rates, buffer rates and amendments to the household expenditure measures with the Reserve Bank of Australia’s cut to cash rates.
Regulators and lenders are juggling different lending criteria in a bid to stimulate sluggish property lending without causing another frenzied price boom.
A buffer – or what banks call a “servicing sensitivity margin” and/or a floor rate – is applied to existing and proposed lending to help determine a reasonable assessment for existing and new loan applicants.
For example, a borrower has a principal and interest loan of 4.93 per cent, less any discounts. The lender adds the sensitivity margin of, say, 2.5 per cent, to set a benchmark of 7.43 per cent, which will be used for assessing the borrowers’ capacity to service based on their income and total spending.
In this case, 7.43 per cent is used in serviceability as it is higher than the floor rate of 5.5 per cent.
Earlier this week Westpac cut its “floor”, or serviceability, rate from 7.25 per cent to 5.75 per cent and raise the buffer rate from 2.25 per cent to 2.5 per cent.
Last week ANZ cut the rates to 5.5 per cent and 2.5 per cent respectively. Sensitivity and floor rates are intended to ensure borrowers can meet their repayment obligations if interest rates begin to rise.
Lenders are slowly rolling out the changes because of the need to amend internal systems, alert networks to changing processes and align any moves to their risk appetite.
Several lenders are including loan discounts, which apply to package loans, honeymoon rates or deals negotiated by brokers, in the assessment, which gives them a broad discretion about the benchmark rate.