July 24 (Reuters) - National Australia Bank Ltd (NAB) said on...

July 24 (Reuters) - National Australia Bank Ltd (NAB) said on Wednesday it would ease home-lending rules effective Aug. 5, lowering the interest rate it uses to stress test customers' loan applications to a minimum 5.5%, in line with its larger peers.

Australia's fourth-largest lender is the last of the Big Four dominating the country's banking system to implement the loosening of mortgage lending rules, introduced by the prudential regulator earlier this month to help stabilise declining home prices.

NAB also set a new buffer rate of 2.50% and the revised rates are applicable to fresh home loan applicants, it said.

The Australian Prudential Regulation Authority (APRA) earlier this month allowed banks greater flexibility to set their own minimum testing rates after scrapping a minimum 7% interest testing rate for loan applications.

This was in addition to the central bank reducing benchmark interest rates to an all-time low of 1% and the government's tax cut worth A$158 billion ($111 billion), which were all aimed at boosting a sluggish economy.

"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, chief customer officer - consumer banking, adding that the bank welcomed APRA's new guidelines.

With APRA's credit easing measure set to boost the borrowing capacity of many new customers, the central bank has indicated that house prices were slowly stabilising, following a protracted property downturn.

Rating agency Moody's said lower interest-rate floors used by many Australian authorised deposit-taking institutions will lift the borrowing capacity of home buyers, but were credit negative for future residential mortgage-backed securities.

Westpac Banking Corp (WBC) and Australia and New Zealand Banking Group (ANZ) and Commonwealth Bank of Australia (CBA) have all eased mortgage lending rules.