Heritage Bank updates serviceability floor

Heritage Bank announced today it would lower its interest rate floor for home loan serviceability, following APRA’s recent decision to officially adopt changes to its prudential guidelines on serviceability assessments.

26 July 2019

Heritage Bank announced today it would lower its interest rate floor for home loan serviceability, following APRA’s recent decision to officially adopt changes to its prudential guidelines on serviceability assessments.

Heritage will reduce its floor rate from 7.15% to 5.75%, and increase the buffer from 2.20% to 2.50%.

This will become effective from 1 August 2019.

APRA previously mandated a minimum floor rate of at least 7% and a buffer of at least 2% above the loan product rate.

However, APRA recently reviewed the suitability of those rates and on 5 July removed the specific requirement for the serviceability floor to be above 7%, while also increasing the required buffer to 2.5%.

Heritage CEO Peter Lock welcomed APRA’s decision.

“The previous floor rates and buffers were simply no longer appropriate, given the historic low interest rate environment we are now in.

“We welcome the opportunity to review and lower our serviceability floor. This change will make it easier for people to qualify for a home loan, or to borrow more, without adding extra risk.

“Prudent measures are still in place to ensure people can afford their loan, but we’ve been able to remove what had become an artificially high barrier to home ownership.”