ANZ New Zealand, the country's biggest mortgage lender, has dropped the interest rate it uses to test whether wannabe borrowers will be able to meet repayments if interest rates rise.
An ANZ NZ spokesman confirmed to interest.co.nz the bank's home loan affordability test rate was reduced to 7.10%Â from 7.25% effective Wednesday.
"The rate helps us ensure borrowers can repay their loans without entering financial hardship. The rate is subject to change and based on New Zealand market conditions," the ANZ NZ spokesman said.
A lower test rate enables borrowers to borrow more. The Reserve Bank noted in last November's Financial Stability Report that; "borrowers’ capacity to take on more debt could increase quickly given further easing in monetary policy. With low overall lending growth, banks are facing competitive pressures to attract a limited pool of creditworthy borrowers."
The Reserve Bank is due to review the Official Cash Rate on April 9 and is expected to reduce it by 25 basis points to 3.50%.
ANZ NZ had nearly $110 billion of housing lending as of December 31 last year.
See other banks' test rates here.
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