Borrowing power on the rise
ASB and BNZ have joined other major New Zealand banks by lowering their mortgage serviceability test rates, expanding borrowers’ lending capacity.
ASB, the country’s second-largest mortgage lender, reduced its test rate from 8.7% to 8.1%, a 60-basis-point cut.
“Following our recent decreases across our fixed and floating [home loan] rates, we have now updated our test rate,” an ASB spokesperson told interest.co.nz.
BNZ also announced a 50-basis-point cut, dropping its test rate from 8.5% to 8.0%, mirroring similar reductions by other major banks.
OCR cut drives banks to lower rates
These adjustments follow the Reserve Bank’s recent decision to reduce the OCR from 5.25% to 4.75%. The Reserve Bank made the move after inflation returned to its 1-3% target range, triggering many banks to lower both lending rates and serviceability test rates.
ANZ, Westpac, and Kiwibank reduce test rates
ANZ NZ, the country’s largest mortgage lender, reduced its test rate to 8.05% on Oct. 15, down from 8.5%.
Similarly, Westpac NZ adjusted its rate from 8.65% to 8.15%, while Kiwibank dropped its test rate to 8%, aligning with other major lenders.
Among smaller banks, TSB Bank now applies a test rate of 7.9%, while SBS Bank confirmed plans to introduce an 8% test rate next week. The Co-operative Bank has also adjusted its rate but did not disclose the exact figure, interest.co.nz reported.
Borrowers’ capacity grows as test rates fall
Mortgage serviceability test rates are critical tools banks use to assess borrowers’ repayment capacity under higher interest scenarios. Lowering these rates allows borrowers to access larger loans, boosting the housing market.
However, the recent reductions follow a period of sharp interest rate increases from the historically low levels seen in 2020-21.
By May 2023, the Reserve Bank estimated that 25% of mortgages had been stress-tested at rates below the prevailing market rates, reflecting the fast-changing environment.
New mortgage commitments rise
The latest data from the Reserve Bank revealed a 6.9% increase in new mortgage commitments in September, compared to August.
In total, 17,298 new commitments were issued in September, up 2.6% from the previous month and significantly higher than the 14,969 commitments in September 2023, interest.co.nz reported.
Read the interest.co.nz report here.
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