Risk weights for non-standard residentiaRisk weights for non-standard residential property loans

Risk weights for non-standard residential property loans

1. An exposure that is secured by residential property but does not meet any of the requirements set out in paragraphs 3 to 7 of this Attachment, must be classified as a non-standard loan.

2. The following exposures must also be classified as non-standard loans:

   1. interest only loans with an LVR greater than 80 per cent and an interest-only term that is specified in the loan contract as greater than five years or is of unspecified duration. The non-standard treatment applies while the loan remains on interest-only repayment terms. Exposures that meet the above criteria but are predominantly for business purposes may be excluded;
   2. reverse mortgages, which are exposures that do not require principal-and-interest payments until termination of the facility. A risk weight of 50 per cent may only be applied to reverse mortgages where the criteria in paragraphs 3, 4, 6 and 7 of this Attachment are satisfied in addition to the LVR criteria in Table 2;
   3. shared equity mortgages, where both the borrower and lender share in any gain or loss in the value of the mortgaged property; and
   4. loans to self-managed superannuation funds.

3. An ADI must apply the risk weights in Table 2 to its non-standard loans secured by residential property, based on LVR (where applicable).

4. Risk weights for non-standard loans

<table cellspacing="0" cellpadding="0" style="margin-bottom:0pt; border:0.75pt solid #000000; border-collapse:collapse"><tbody><tr><td rowspan="2" style="width:180.35pt; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:bottom"><p style="margin-top:3pt; margin-bottom:3pt; text-align:right; page-break-after:avoid"><span style="font-weight:bold">LVR (%)</span></p></td><td colspan="2" style="width:213.15pt; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; text-align:center"><span style="font-weight:bold">Risk weight (%)</span></p></td></tr><tr><td style="width:101.15pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; text-align:center"><span style="font-weight:bold">≤ 60</span></p></td><td style="width:101.2pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; text-align:center"><span style="font-weight:bold">&gt; 60</span></p></td></tr><tr><td style="width:180.35pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; page-break-after:avoid"><span style="font-weight:bold">Reverse mortgages</span></p></td><td style="width:101.15pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; text-align:center"><span>50</span></p></td><td style="width:101.2pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; text-align:center"><span>100</span></p></td></tr><tr><td style="width:180.35pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; page-break-after:avoid"><span style="font-weight:bold">All other non-standard loans</span></p></td><td colspan="2" style="width:213.15pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="margin-top:3pt; margin-bottom:3pt; text-align:center"><span>100</span></p></td></tr></tbody></table>