The country’s biggest bank is taking further steps to tighten credit policies for home loan customers, as lenders face pressure to slow growth in the mortgage market.
Commonwealth Bank of Australia informed mortgage brokers on Friday of changes that will mean new borrowers’ existing debts and their incomes are assessed more stringently.
CBA will apply a “servicing loading” of 20 per cent to all repayments on existing home loans and lines of credit held by customers. The loading – an approach also used by other banks – means customers applying for new loans will have their ability to repay their existing loan more closely scrutinised. The 20 per cent loading means repayments that were assessed at $1000 a month will now be assessed at $1200 a month.
CBA also said it would also take a tougher line when assessing borrowers’ income. It will accept only 80 per cent of income from overtime, bonuses, and investment income when it is assessing home and investment loan applications.
In addition, for all new investment loans with a loan-to-valuation ratio above 90 per cent, the bank will not consider the tax breaks borrowers receive from negative gearing when it is deciding whether to approve the loan application.
As part of the changes, CBA said the maximum loan-to-valuation ratio for all owner-occupied home loan applications would be 95 per cent. The bank’s website says its existing policy is to allow LVRs of up to 97 per cent, including the cost of mortgage insurance.
“As the nation’s largest home loan provider we constantly review and monitor our loan portfolio to ensure we are maintaining prudent lending standards and meeting our customers’ financial needs,” the note to brokers said.
The changes are similar to steps already taken by other banks, as the industry seeks to comply with the Australian Prudential Regulation Authority’s cap of 10 per cent a year on investor credit growth.
Latest official figures show CBA was the only major bank growing more slowly than this target.
It comes after the CBA and all its major rivals also reduced the interest-rate discounts offered to new investor borrowers.