Westpac tightens lending standards following increased regulatory scrutiny
After having suffered technical restrictions last month, which prevented it from charging varying interest rates on different types of loan, Westpac appears to have overcome these problems, and has now tightened policies for interest-only mortgages, an area over which regulators have raised concerns over recent months.&nbsp;The country's biggest lender to landlords has told brokers about the changes, which require new interest-only borrowers to be tested against their ability to make principal, and interest and fees payments over the "residual" period of the loan after the interest-only period had ended. The bank also&nbsp;reduced the maximum interest-only period for owner-occupier home loans from 15 years to 10 years.
Westpac is tightening credit policies for interest-only mortgages, an area where financial regulators have raised concerns about bank underwriting standards.

The country's biggest lender to landlords last week told brokers of changes requiring new interest-only borrowers to be tested against their ability to make principal, and interest and fees payments over the "residual" period of the loan after the interest-only period had ended.

Westpac also released unaudited full-year results which showed profits had risen 3 per cent to $7.82 billion. Credit: Bloomberg

Australian Prudential Regulation Authority chairman Wayne Byres singled out the issue as a concern in a May speech.

He said that if a borrower sought a 30-year loan with a five-year interest-free period, only a minority of banks assessed the borrower's ability to make principal and interest payments over the remaining 25 years – the approach Westpac was adopting.