Commonwealth Bank’s “alternative buffer” for home loan refinancing applications comes with a number of conditions and exclusions, designed to appease the banking regulator. CBA has reduced its serviceability buffer to 1 per cent for some home loan refinancing. Applicants will be assessed on a buffer of 1 per cent or a floor rate of 5.4 per cent, whichever is higher. This reduced buffer will apply under the following conditions:·      the loan being refinanced has been open for a minimum of 12 months; ·      the amount to be refinanced is no greater that the existing loan plus the higher of A$10,000 or 1 per cent of the amount being refinanced (to cover fees and payout costs);·      the loan has a loan-to-valuation ratio of 80 per cent or less and no lenders mortgage insurance;·      the borrower has not had any delinquencies in the past 12 months; and·      the applicant passes income, expenses and liability assessments. Certain types of loans will be excluded, including bridging loans, construction loans, loans with guarantors, loans involving any government guarantee scheme, unsecured debt and applications for any top-up or additional amounts. The Australian Prudential Regulation Authority has defended its controversial serviceability buffer, saying it is an important element in maintaining prudent lending standards and that it will stay at 3 per cent. It allows some flexibility. APRA chair John Lonsdale said recently: “Where sound borrowers do not fit standard lending criteria, APRA’s framework does not prohibit banks from lending to these borrowers. APRA expects banks to have prudent limits, controls and justifications for exceptions to lending policy and for these loans to be monitored closely.” In a letter to ADIs earlier this month, APRA said exceptions to policy “allow banks to take into account additional indicators of repayment capacity beyond those captured in the standard serviceability test. For a borrower seeking to refinance, this could include past repayment behaviour.” APRA went on to say it would not like to see large volumes of exceptions, which can weaken banks’ risk profiles. “Historically, serviceability policy exceptions have accounted for a small share of banks’ total housing lending, at between 2 per cent and 3 per cent. It is important that exceptions are used in a prudent and limited manner.”