Today, we will share with you something we've recently noticed about Westpac's lending policy and how they calculate clients’ existing home loan repayment. With its special calculation, you may borrow much more than other banks.

Before the introduction of CCCFA at the end of last year, each bank had somewhat distinctive lending policies. Different lenders will have different appetites for different kinds of clients. Therefore, it’s easy to know which lender best fits your needs. However, after the introduction of CCCFA, all lenders are busy complying with regulations. That's why there was a time when all banks had the same lending policies, and you may get the same loan amount from all major banks. As the CCCFA settle down a bit now, we can start to see some uniqueness again.

How does Westpac calculate clients' existing home loans which allows clients to borrow more than other banks? Before we understand that, we need a basic understanding of how a loan approval or assessment works when you apply. Usually, each lender will have a rule of how much money you must have before this loan can be approved. Then, the lender will calculate the difference between your total income and expenses. If the difference in your account is higher than the threshold, your loan can be approved.

Furthermore, how do lenders calculate your existing loan repayment? The loan repayment is part of your expense. But no lender will use your actual loan repayment figure to calculate. Each of them always has its own rules. By tweaking those rules, lenders will have a slightly different strategy or selection criteria for what kind of clients they want. In this case, if you existing home loan with relatively low interest rate, Westpac potentially can lend you much more than other major banks due to their unique way of calculating your existing loan repayment amount.

Let's look at this example and see what the difference are. For example, a family with two adults and two kids. Each parent earns $90k p.a. before tax with a 3% kiwi saver. In addition, they have a credit card with a $2k limit.

Scenario 1:

They are planning to buy their first home with No lending and no property.

In this case, we can see that the two banks can lend almost the same amount. In fact, Westpac's loan amount is slightly higher than ANZ's by about $15,000.

Scenario 2:

They have a family home with $800k home loan. The fixed interest rate is 3.45%. And they are planning to buy an investment property with an expected rental income of $600.

Because of the special calculation of Westpac’s existing loan amount, Westpac can potentially lend $160,000 more than ANZ.

Scenario 3:

They are a couple of experienced property investors who own three investment properties with a $1.5m mortgage. The rental income is $2.2k per week. They are planning to buy their 4th investment property with an expected $600/w rental income.In this case, Westpac can potentially lend $290k more than ANZ because of the larger borrowing home loan amount.

In Summary, if you can take advantage of this particular calculation from Westpac, two things really affect the loan amount. An existing home loan and low existing home loan interest rate (under 4%). The more considerable the existing loan amount you have, the more significant the difference will be.

If you are thinking about how much you can borrow and if Westpac is a suitable lender for you, we’re here to help. Call us at 09 930 8999 for a chat with one of our mortgage advisors. We’ll look at your case, understand your needs and situation then make a tailored solution for you.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.