National’s win may be good news for would-be house-buyers, mortgage brokers say.
The party, set to form the next government, has promised to roll back changes to the Credit Contracts and Consumer Finance Act (CCCFA), introduced at the end of 2021, which led to banks asking more in-depth questions about borrowers’ spending habits.
The rules were designed to protect applicants from taking on loans they could not afford but many complained they went too far.
One person was told they spent too much money on their dog. One was turned down despite having a deposit of 57%, because she had been on maternity leave. One couple lost their preapproval just days before an auction and saw the property sell for less than they would have been willing to pay.
The rules were tweaked last year, clarifying that banks would not need to ask about living expenses from recent bank transactions and removing things like savings and investments from the outgoings that banks had to include in their calculations.
But National said it would tighten the scope of the CCCFA further.
New Zealand Banking Association chief executive Roger Beaumont said there had been a number of tweaks to address “unwelcome consequences” for borrowers.
“Every time there’s a change, banks need to adjust their lending policies and processes and re-train staff. Part of developing quality regulation is making sure it’s fit for purpose the first time around.
“The latest changes that came into effect in May still mean affordability assessments are needed for all types of lending and borrowers.
“It also means banks no longer have the discretion or flexibility to help customers in need, for example in cases of natural disasters, or a change in personal circumstances.”
Mortgage adviser Bruce Patten, from Loan Market, said he expected changes to make it easier for banks to do business and make their own lending decisions.
“They have said all along this change in legislation has made it hard for them to do business and they weren’t doing anything wrong in the first place, just a crappy piece of legislation badly worded affecting the wrong part of the industry when it wasn’t intended to.”
Another adviser, Glen McLeod of Edge Mortgages, said the CCCFA rules had been weakened over the last few months anyway but rolling them back further would be welcome.
“The reality is that it does still have an influence on what is taken into account as any legislation which provides guidance will. Most of the major requirements from December 2021 have been reduced. This legislation should have been targeted at the sector it was written for, loan sharks. Not the banks or the majority of the non-bank lenders.”
He said some borrowers were encountering problems because they had to hold a property through a trust or company to access non-bank lending.
“Making the client change the ownership can restart the bright-line test. This is due to some lending needing to be non-regulatory. In these cases the lender’s risk is high and they charge fees and interest rates are higher. They are also short-term in nature.
“Another issue is the use of funds where a client may want to use equity in the family home to assist their business. These funds then are looked at as business lending rather than personal lending. Therefore it comes with a higher interest rate. I would hope that the rolling back of the legislation will make lending easier for the majority of borrowers.”
But David Cunningham, chief executive at Squirrel, said the worst elements of the CCCFA had already gone.
“High interest rates and high servicing rates by banks are the biggest constraint on credit conditions.
“One of the big issues with CCCFA that the new Government needs to look at is the penalties regime, which is totally out of whack with consumer harm. So a look at the CCCFA in its totality is critical.”
He said penalties should be consistent with the scale of customer loss.
“If initial or continuing disclosure wasn’t adequate, the lender is entitled to no interest.”
He said that could mean the lender missed out on an amount of money that was many times what the customer had lost, if they lost money at all.