Higher borrowing buffers, but Westpac offers $1500 enticement to lure new spring borrowers

The mortgage loan market competition hasn't waned despite the recent warnings of regulatory authorities, although there has been some low-key, very significant back office, loan criteria amendments.

Westpac Banking Corp has announced it is offering home buyers $1500 if they take out a mortgage with the bank.

Spring home buyers who borrow more than $500,000 will be eligible for the “cash-back rebate” under the deal.

Westpac joins many other lenders offering inducements to secure home loan customers as the property market gets stronger underpinned by record low interest rates.

Westpac’s offer tops the National Australia Bank which since mid-August has been ­paying $1000 to new customers in an offer running until the end of September.

The Commonwealth Bank of Australia is offering home owners $700 to switch to the bank by September 27.

The Westpac subidiary, St George Bank is offering $1250 until ­October 31.

The aggressive competition for customers comes as the Reserve Bank of Australia warns banks not to lower their lending standards to attract borrowers.

Both the RBA and the Australian Prudential Regulation Authority issued warnings earlier this month.

Significantly banks have quietly adjusted their interest rate “buffer” to test whether prospective home loan borrowers can afford repayments when interest rates rise in the future.

The banks don't disclose the adjusted criteria used to assess loan applications, but a 2% buffer has reportedly become typical following the most recent rate cuts.

The test for borrowers previously had buffers of between 1.25% and 1.5%.

This stricter internal criteria means that if a bank has a 5.5% mortgage interest rate, it will only approve the loan to borrowers capable of making repayments should rates hit 7.5%.

It has been noted by Australian Financial Review commentary that September historically has been among the most competitive times for home loans as the ANZ Banking Group, NAB and Westpac shortly sign off on their annual accounts.

Westpac still maintains a higher variable mortgage rate than its major competitors.

Ofcourse growth in housing credit remains at near record lows of around 4.6% compared to the 20% plus gains of the last big boom of 2003-2004 when house prices were last in a bubble.