ASB, Westpac tweak servicing tests

ASB has increased the minimum average expenses on a range of costs used to work out the amount of free cash a potential borrower has each month.

Minimum expenses per adult have increased from $600 to $610 per month. The minimum expense on rates has risen from $170 to $185 a month. While the minimum expense for utilities has risen from $265 to $275 a month, and insurance is up from $85 to $90.

The increases will slightly reduce the amount of surplus income for loan applicants. ASB told advisers about the changes on June 1.

It comes against a backdrop of New Zealand’s major banks making internal changes to tighten lending. Adviser says lenders have made servicing assessments, or “stress tests”, more difficult.

Westpac, meanwhile, has also made some tweaks to its loan servicing criteria. A spokeswoman said Westpac changed its servicing test last month to focus on “applicants’ cash surplus after all commitments are met” and has introduced additional assessments and verification requirements. The bank has also introduced an allowance for credit card limits and the “definition of other discretionary living expenses”, the spokeswoman said.

Advisers say Westpac is imposing a “stretch test” on applicants, including property investors, testing their finances on a notional interest rate of 7.25%. Westpac says the 7.25% notional rate has been “included in the assessment process since mid-2016”.

Westpac is also testing investors applying for interest-only loans on a principal and interest basis, two advisers said.