ASB becomes second bank this week to increases home loan stress test

Tuesday, 3 May 2022

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ASB is the second bank this week to increase the interest rate it stress tests mortgage applicants at from 6.85% to 7.35%.

The country’s largest mortgage lender, ANZ, confirmed on Tuesday morning that it had increased its servicing sensitivity rate from 6.7% to 7.15%.

The changes will reduce the amount most buyers can borrow by roughly 4.5%, Mortgage Lab chief executive Rupert Gough says.

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Mortgage Lab chief executive Rupert Gough says harsher stress testing will reduce the amount of money in the market.

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In other words, if a borrower had $800,000 pre-approved last week, that would drop to about $764,000.

Property investor Steve Goodey said with stress testing rates so high, the Reserve Bank may not need to impose debt to income ratio requirements on lending.

Gogh said the knock-on effect would be buyers were removed from competing for a certain price range of property, and moved down a peg on the ladder, which in turn may reduce prices further.

“Fewer buyers, less demand, house prices go down,” Gough said.

ANZ is the country’s largest home loan provider.

“And already the buyers were pretty thin on the ground.”

He said while stress test increases were another hurdle for buyers, along with rising interest rates and harsher lending rules under the Credit Contracts and Consumer Finance Act it wasn’t the bank’s fault, and ANZ was acting correctly and responsibly to ensure borrowers could afford their mortgages.

An ANZ spokesperson said the bank's servicing sensitivity rate was changed on Monday, and was regularly reviewed in line with the changing interest rate environment.

ASB has increased the interest rate it stress tests mortgage applicants from 6.85% to 7.35%.

“This means when interest rates rise, we are likely to increase the servicing sensitivity rate to help ensure we have a sufficient buffer in our affordability assessments so that customers can continue to afford their home loan repayments despite rates rising.”

The servicing sensitivity rate referred to stressing the borrowing interest rate only, not stressing the customer’s spending behaviour.

“The servicing sensitivity rate is one of the buffers we build into our affordability calculations to help ensure customers are able to manage their repayments if interest rates rise,” the spokesperson said.

An ASB spokesperson said the bank changed its stress testing rate on Monday, after considering a range of factors, including current and forecast economic conditions, current home loan interest rates, and how interest rates may change over a longer time period.

“Typically, our test rate is a couple of percentage points higher than the customer’s loan rate,” the spokesperson said.

“We do this to ensure customers have room in their current budget to make larger repayments if interest rates rise.”

Property investor Steve Goodey said the change would lock more people out of the market, and was likely to drive more people to second-tier lenders, which charged higher interest rates but didn’t have such strict lending rules.

“It’s gone to the point of being a little bit ridiculous to get money approved,” Goodey said.

He expected the property marked to be slowed further by the stricter stress testing, and sale volumes were likely to fall.