The National Australia Bank (NAB) has updated its mortgage serviceability assessment policy, reflecting the Australian Prudential Regulation Authority’s (APRA) new guidelines.

The major bank dropped its interest-rate floor to 5.5% and increased its interest-rate buffer to 2.5%, effective for all new home loan applications from 5 August.

The changes came after APRA revised its home-lending guidance, abolishing the 7% interest-rate floor for mortgage assessments and raising the buffer rate to 2.5%.

“NAB welcomes the updated APRA guidelines on home lending serviceability. We believe now is the right time to change the approach to how the affordability rate floor is determined, given the continuing low-interest-rate environment,” said Mike Baird, NAB chief customer officer of consumer banking.

NAB is the latest lender to tweak its serviceability policy after the other three Big Four banks revised their guidelines earlier in July.