But other analysts believe the new product and pricing strategies are needed to meet Australian Prudential Regulation Authority's demand that lenders are "comfortably below" its guidelines.

Lenders are also under growing pressure to check on individual lender's capacity to repay by checking on their income sources and total out-goings, including repayment of other loans.

From Saturday, Westpac will remove some products offered to higher risk low documentation and older property owners.

They include Seniors Access and Seniors Access Plus, which are both lines of credit secured against the borrowers' property, and standard variable rate low-documentation and fixed rate low documentation home loan.

The bank claims the changes are to "simplify and streamline" its product range.

In addition, it is introducing strict new guidelines on borrowers switching principal and interest loans to interest-only.

Many property buyers apply for a higher repayment principal and interest loan and then switch to the cheaper interest-only early in the loan's term. Another strategy is to split the loan between the different repayments.

Under the new rules, which also apply from Saturday, borrowers seeking to switch, or split, will need to undergo additional scrutiny of their ability to repay and income.


It is believed onus for collecting the information is believed to be switched from mortgage brokers, who act as intermediaries between the borrower and bank, to the bank.

The RBA and prudential regulators are concerned the volume of interest-only lending is increasing households' financial vulnerability because of higher average indebtedness over the life of a loan compared to alternatives.

APRA issued an order at the end of March requiring banks to cut interest-only loans to 30 per cent of new residential lending and imposed a 10 per cent speed limit on new growth.

Lenders are attempting to growth their highly profitable mortgage books by reducing exposure to interest-only and increasing lower risk owner occupier principal and interest loans.

For example, Westpac is not charging fees for interest-only home loan customers switching to a principal and interest loan.





