In a statement sent to its broker network on Wednesday, the big four bank said it was changing the calculation used to determine an investor’s HEM band.

The HEM is what many lenders use to estimate a borrower’s living expenses, which helps to determine how much money someone can afford to borrow for a home loan.

Previously, borrowers who reported lower living and property management costs than those implied in the HEM benchmark were assessed as if their living costs were higher.

“Effective Wednesday 6 November 2019, a customer’s HEM band will be determined by their gross annual income plus their gross annual rental income less any investment property operating costs/expenses or investment loan interest costs,” Westpac said in its statement.

“Prior to this policy change, a customer’s HEM band did not deduct any rental expenses or investment loan interest costs.”

Westpac said as a result of the changes, existing investment borrowers would see immediate benefits.

“This change aligns our practice to how the HEM value is derived for different income bands,” it said.

“As a result of this policy change, your customers may experience an improvement in borrowing capacity.

In particular, Westpac said customers with an investment property or those who are looking to purchase an investment property and are currently reliant on HEM would benefit.

Westpac posted a 16% loss in profits for the 2018 financial year, part of which has been attributed to strict lending criteria and the introduction of a HEM tool that was highly unpopular among brokers.

In the 12 months to September 2019, Westpac’s home loan growth was only around 1.5%.

Westpac CEO Brian Hartzer said 2019 has been a disappointing year for the major bank.

“Financial results are down significantly in a challenging, low-growth, low interest rate environment, he said.

Speaking to media on Monday, Mr Hartzer said internal changes were partly to blame for the poor results.

“Some of it has been self-inflicted through the changes that we put through on the expense categorisation and the tool that we put out there – that we feel we’ve fixed,” Mr Hartzer said.

“We’re seeing the application volumes increase again.

“So, I think there’s no reason why over time we shouldn’t be growing at or above system in our different businesses.”

It’s the second change in lending restrictions for borrowers, with the bank announcing in October that it was halving deposit requirements for interest-only investors.

Effective from 21 October, the maximum loan-to-value ratio for interest-only loans was raised from 90% to 80%.

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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

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