What impact will the move have for eligible borrowers?
National Australia Bank has announced that it will begin assisting home loan borrowers who are trapped in what is known as "mortgage prison" due to strict regulatory standards.
Starting from July 21, NAB will implement policy changes to address this issue, The Australian reported.
The bank joins other financial institutions, including Commonwealth Bank and Westpac, in easing loan serviceability requirements for eligible borrowers.
Many borrowers who entered into home loans at lower interest rates are struggling to meet the regulatory requirements necessary to refinance their loans at current market rates, The Australian reported.
Recognizing this, NAB will be making exceptions on a case-by-case basis for "like for like" refinancing of principal-and-interest loans. This means that borrowers who are considered a good credit risk but may not fully meet standard lending criteria, including serviceability buffers, will be eligible for assistance.
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In a memo to bankers and mortgage brokers, NAB stated its intention to “refresh” its existing approach to support eligible refinance customers in switching to NAB.
The exceptions to regulatory requirements will provide relief for borrowers who find it difficult to meet the strict criteria imposed by the Australian Prudential Regulation Authority, which prohibits banks from offering mortgages to borrowers who cannot repay the loan at an interest rate three percentage points above the actual interest charge.
While the rule sets a high bar for lending, it does allow for exceptions, and banks are utilising these exceptions to attract new customers, The Australian reported. APRA confirmed that banks are expected to approve around 6% to 7% of refinancing applications under the rule exception.
To be eligible for NAB's assistance, new customers will need to have at least 20% equity in their homes and a good repayment history on their current mortgage, The Australian reported. This initiative aims to provide relief to borrowers who are currently trapped in unfavourable loan conditions and enable them to access more favourable terms with NAB.
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