Westpac announced that it would no longer relax its policy on mortgage repayment capacity after discussions with the Australian Prudential Regulatory Authority (APRA).
The big bank demoted a few hours after confirming that it would move the changes forward.
Westpac had revealed that it would facilitate the terms of service of low-risk housing loans, by immediately raising the financing capacity to 8%. The large bank allowed loan officers to use their discretion to approve principal and interest loans to homeowners who did not yet meet loan parameters, according to a spokeswoman for Westpac.
"We have recently updated our approach to evaluating some new home loan applications with principal and interest for the homeowner for an interim period only," the spokesman said. Australian Financial Review.
According to the Australian Financial Review, the amendments did not apply to investors or owner-occupiers with interest-only loans.
However, Westpac quickly reversed its decision.
Following discussion with APRA, Westpac decided to suspend the amendments as long as the regulator's fitness for service instructions remain under review. APRA said it urged institutions to consider its directions for implementing policies and practices.
The regulator cautioned licensed deposit-taking institutions (ADIs) that did not follow its guidelines to ensure that they would be able to prove that they were lending prudently.
APRA recently unveiled its response to the first round of consultations on proposed changes to the capital framework for ADIs. The proposed changes include the relaxation of the capital requirements for the owner's reduced rate and owner interest rate loans; and started from Basel III – a banking regulatory framework designed to promote financial stability.
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