Why borrowing is so difficult – CCCFA amendments
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Articles by Kris Pedersen.
If you keep an eye on the media, you will have noticed over the Christmas break and into January a plethora of articles referring to the CCCFA. The Credit Contracts and Consumer Finance Act was initially brought in back in 2005, but all the recent noise has been to do with amendments to the Act that came in on 1 December 2021.
When commentators such as Tony Alexander spoke out and called this the “biggest tightening of credit conditions since Robert Muldoon was Prime Minister”, it was bound to create a stir. Articles since then about how first home buyers are finding it even more difficult to borrow are just compounding this.
Some banks are using extraordinary criteria to assess borrowers
At Kris Pedersen Mortgages we have seen first-hand the stupidity that seems to be reigning supreme. One bank, as an example, is now recording regular savings as an expense and thus reducing the amount they are willing to lend to these types of borrowers. This is completely contrary to all lending since I have been involved with finance, as people with better money habits tend to be better at repaying their debt.
As another example, we have found that older borrowers are being negatively affected even though they may come to the table with a strong asset position. Lenders are now getting a lot tighter in regard to giving them a reasonable loan term, with some taking an age of 70, subtracting the eldest applicant and stating this to be the maximum allowable loan term. Invariably for older borrowers this causes issues.
Legislation rushed through too fast?
This seems to be another case of the current Government rushing through poorly thought legislation and then being surprised when there ends up being unintended consequences. Effectively the change puts a lot more onus on the lender to collect information about why the borrower needs the loan, and to prove that the borrower can afford the repayments well into the future without getting into financial difficulty.
To reinforce this, bank directors can now be personally fined $200,000 if they are found to be breaching the law. The bureaucrats who designed this legislation decided to ignore the fact that our main banks are conservative lenders these days, so essentially, they are trying to fix a problem that doesn’t exist.
While the change may sound like a good idea to protect vulnerable borrowers, what has eventuated is that everyone is getting put into this basket. Banks are now forensically going through bank and credit card statements and questioning singular transactions such as take outs or a trip to the hardware store.
Enquiry into the amendments
Commerce minister David Clark has now ordered an inquiry into this. However, I am concerned as per the NZ Herald article on 1 February 2022 which stated that the inquiry will be “headed by unnamed officials at the Ministry of Business, Innovation and Employment.” In a conversation I had with Brooke van Velden of the Act Party, we agreed this should be a lot more transparent and believe that there is a strong chance that the inquiry will just come back and blame the banks.
Non-bank lenders
It’s expected that we will hear some more this month with further advice in April, but in the meantime, the legislation is creating a gap which non-bank lenders are happily jumping into. This segment of the market has been growing aggressively already over the last 12 months and these changes will just continue to widen the space for them.
Summary
The amendments to the CCCFA are making life very difficult for many borrowers. Be wary if you have committed to any projects without having your finance in place, as it is a very different world to that of only a couple of months ago. If you need help, contact us at Kris Pedersen Mortgages.
Webinar
I discussed the CCCFA amendments and their implications with Gilligan Rowe & Associates managing director, Matthew Gilligan, in a webinar in March. You can watch the recording here.
Kris Pedersen
Managing Director at Kris Pedersen Mortgages
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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