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What does Government reversal on CCCFA mean for buyers?

First home buyers can breathe a sigh of relief.

The Act, which came into effect on December 1, 2021, required lenders to follow a more robust process ensuring that lending was affordable and suitable for borrowers of all kinds of assets. It was meant to protect borrowers of all credit from predatory and irresponsible lending.

The unintended consequences of the law were that many quality borrowers found themselves turned down on loans to buy homes and other assets that they would normally have expected to be given approval on. The real estate industry has been particularly hard hit.

The value of new residential mortgage loans fell 21% in January compared with the previous year and the proportion of mortgage applications resulting in approval fell to 34% in February down from 40% in October last year, according to the credit reporting agency, Centrix.

Centrix Managing Director, Keith McLaughlin, says the home lending conversion rate dropped 5– 6% from December to February while personal credit loans dropped 7-8 %. That figure of 5 – 6% is a lot of money taken out of the home lending market – loans that prior to December 1 would have been approved, were declined, he explains.

After consulting with lenders and consumers, Minister Clark has moved to announce some practical amendments so borrower-ready consumers can still access credit.

In a media release, the Minister said that when borrowers provide a detailed breakdown of future living expenses, there was no need to inquire into current living expenses from recent bank transactions.

The requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records, he added. He also undertook to provide alternative guidance and examples for when it was “obvious” that a loan is affordable.

A broader investigation, led by MBIE and the Council of Financial Regulators, into the early implementation of the CCCFA amendments, is ongoing, the remainder of the investigation due in April. Changes are expected to kick in from June this year.

June may seem like a very long time away to those impacted by the December changes, warns the Real Estate Institute of New Zealand (REINZ) Chief executive, Jen Baird, who has met with Treasury and MBIE to explain the negative effect the December 2021 CCCFA changes have had on the market with REINZ property stats to back her up.

“While intended to curb predatory lending, instead it curbed many first home buyers’ ability to access finance and get on the property ladder,” she says.

Jen adds: “We were pleased to hear the Government intends to tweak the responsible lending rules, although REINZ questions whether this will be enough in the current economic landscape.”

Who has been affected by the December CCCFA?

One of the big changes wrought by the CCCFA's new lending rules has been the way they’ve reduced how much people can actually borrow, says Bruce Patten from Loan Market.

“It isn’t just people getting declined, it’s people getting the amount they want. They might be wanting to borrow $1.5 million, but with the new rules, they’ve only been allowed $1 million.

“We’ve been seeing that consistently. People would apply for a figure and it would be reduced because they’d gone through the bank statements,” says Bruce.

The Loan Market mortgage adviser is hopeful the lending industry will be back where it was six months ago before too long.

Credit scores are way more important, says Bruce. With these, someone’s bill payment information from telcos and credit cards are all fed to a credit agency.

“If I can look at a person’s credit score, I used to be able to confidently quote my client a figure of how much they could borrow and I’d be 99% sure they’d be approved, now I’m 99% not sure.”

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