In their latest Insights publication released last week, the regulator revealed that it had carried out a Hypothetical Borrower Exercises (HBE) during 2015, which saw it collect the serviceability assessments for four hypothetical mortgage borrowers - two owner-occupiers and two investors – used by a number of Australian lenders as 31 December 2014 and 30 September 2015.
APRA collected mortgage serviceability requirements from 20 lenders, with analysis revealing that between 31 December 2014 and 30 September 2015 14 of the 20 lenders increased the interest rate they used in serviceability assessment.
According to the analysis, all 20 lenders examined by APRA are now using an interest of 7% or above when assessing people for new mortgages, while all but two of the 20 are using an interest rate of 7% or more when looking at the serviceability of current mortgage holders.
“Overall, debt serviceability assessments now appear to be both more prudent and more consistent across ADIs, relative to December 2014. APRA will continue to engage ADIs on this issue in 2016 to assess whether the observed improvements in sound underwriting practices are maintained,” the regulator said in the Insights report.
“APRA will also be examining the extent to which loans are able to be approved outside an ADI’s own (tightened) policy parameters,” APRA said.
Applying higher interest rates to potential borrowers is not the only step lenders have taken, with APRA’s analysis also looking at how lenders are assessing income and expenditure of borrowers.
“While the assessment of PAYG salary income has usually remained the same between the two periods, a number of lenders have applied larger haircuts (i.e. discounts) to less stable sources of income such as overtime, bonuses, commissions, investment dividends and rental income,” APRA said.
“Some lenders have made quite large changes to this component of their NIS (Net Income Surplus) assessment. This impact has typically arisen from two main sources, considering borrower-declared expenses where these are greater than calculated benchmarks; and/or scaling living expense assumptions in line with income.”
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