Westpac and leading non-bank lender Resimac Group are making it easier for borrowers to escape “mortgage prison” by slashing serviceability buffers.

This move has triggered a strong response from rival lenders. Mortgage brokers are claiming that buyers are leveraging competing lenders to refinance from loans that would otherwise trap them due to insufficient equity in their homes.

Resimac has reduced the servicing buffer from three percentage points to two, and Westpac is believed to have gone even lower.

According to Resimac’s CEO Scott McWilliam, this decision was based on a thorough analysis of the interest rate outlook.

He says the lender is confident that a two percentage point buffer still provides adequate headroom in case of rate rises, while also giving customers a better chance to enter the property market, refinance, or manage their commitments through debt consolidation.

The Australian Prudential Regulation Authority (APRA) requires new home loan applicants to demonstrate affordability by withstanding repayments at a rate three percentage points higher than their application or at the bank’s floor rate, whichever is higher.

Other lenders are reportedly relaxing conditions for borrowers with good repayment histories and stable incomes, albeit more discreetly on a case-by-case basis.

This move by Resimac and Westpac has ignited competition among lenders. Some are expected to follow suit in easing loan servicing or becoming more amenable to discounts. Westpac’s changes extend to its subsidiary banks, including St George, Bank of Melbourne, and BankSA.