The decision by Westpac and ANZ to adjust their lending criteria is in response to the recent changing of lending criteria by the Australian Prudential Regulation Authority (APRA).

Before the change, if an individual appeared unable to pay back a loan at a mortgage rate of 7 per cent, they would not be approved for the loan.

Now, authorised deposit-taking institutions will be empowered to set their own review standards, as long as they factor in a buffer of at least 2.5 per cent interest.

ANZ was the first bank to announce it would be adjusting its criteria, dropping the serviceability rate to 5.5 per cent from 7.25 per cent, while increasing its sensitivity buffer to 2.5 per cent from 2.25 per cent.

Westpac has also moved its current interest rate floor down accordingly to 5.75 per cent from 7.25 per cent.

The bank also increased its buffer to be in line with APRA standards, lifting its rate to 2.5 per cent from 2.25 per cent.

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About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.