The bank takes into account that interest rates can move over the term of a loan
New Zealand’s biggest home lender has lifted its servicing sensitivity rate, which it uses to test whether applicants will be able to continue making loan repayments if interest rates increase significantly.
ANZ increased its servicing sensitivity rate from 6.7% to 7.15%.
“We now apply 7.15% as our servicing sensitivity rate when assessing affordability, to take into account that interest rates can move over the term of a loan,” an ANZ spokeswoman told interest.co.nz. “Our servicing sensitivity rate is regularly reviewed in line with the changing interest rate environment. 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.”
ANZ’s outstanding home loans totalled nearly $99 billion as of Dec. 31.
Last week, interest.co.nz reported ANZ's test rate was at 6.7% while ASB, NZ’s second-biggest mortgage lender, was at 6.85%. BNZ, Westpac, and Kiwibank wouldn't specify where their test rates were set.
Read more: Exposed: The interest rates banks use to stress test mortgage applicants
Also last week, the Reserve Bank of New Zealand said it set aside the option of setting the interest rate banks use to test borrowers’ ability to cope with rising interest rates.
Read next: RBNZ to design debt-to-income restrictions
RBNZ will release its latest Financial Stability Report on Wednesday, to provide an update on where banking sector-wide test rates are. The central bank started systematically capturing this data in 2018, according to interest.co.nz.
