Westpac has announced changes to its household expenditure measure (HEM) calculation for investors, which could result in a boost in borrowing capacities.
In a statement released to the broker network, Westpac said investors' HEM band will now be determined by a new formula: the operating expenses and investment loan interest costs investors incur will now be deducted from their gross annual income and gross annual rental income.
Before this change, rental expenses and investment loan interest costs were not included in the computation.
"This change aligns our practice to how the HEM value is derived for different income bands. As a result of this policy change, your customers may experience an improvement in borrowing capacity," Westpac said in a statement.
This change came after the bank's announcement last month that it would increase the maximum loan-to-value ratio for interest-only investor loans.
Investors taking out an interest-only loan will now be allowed to borrow as much as 90% of their target property's value, reducing their deposit requirement to 10%.
Westpac also announced recently that a referral to a separate credit review will no longer be required in instances where expenses are higher than 130% of HEM.