Will the new CCCFA rules taking effect on 7 July fully resolve the difficulties people face getting home loans?

In March this year, New Zealand's Minister of Commerce and Consumer Affairs, David Clark, announced revisions to the amendments to the Credit Contracts and Consumer Finance Act (CCCFA) that took effect on 1 December last year. These revisions would make appropriate changes to the CCCFA regulations and the Responsible Lending Code. A statement from the Ministry of Business, Innovation and Employment (MBIE) said these initial changes were intended “to address some of the issues that have emerged since the CCCFA changes took effect, such as unnecessary inquiries, as quickly as possible”. In April, MBIE released draft amendments to the Credit Contracts and Consumer Finance Regulations 2004 (the Regulations) and the Responsible Lending Code (the Code) for consultation. After considering submissions on the drafts, the New Zealand Government released the final amendments to the Regulations and Code on 9 June, stating that the amended versions would take effect on 7 July 2022.

YIJU has compiled the details of these changes:

1. Remove regular “savings” and “investments” as examples of expenses lenders must inquire into when assessing a borrower's likely expenditure.
2. Clarify that when borrowers provide a detailed breakdown of their future living expenses, benchmarked against reliable statistical data, lenders do not also need to inquire into their current living expenses through recent bank transactions.
3. Clarify that when lenders assess expenses using recent bank transaction records, they may ask borrowers how their expenses are likely to change once the contract is entered into.
4. Clarify that the requirement to obtain information in “sufficient detail” applies only to information provided directly by borrowers, such as ensuring that expense categories on application forms are sufficiently detailed, rather than information in bank transaction records.
5. Provide further guidance that a “reasonable surplus” is not required if lenders have applied adequate buffers and adjustments to income and expenses.
6. Provide further guidance and examples of circumstances in which a loan is “obviously” affordable, making a full income and expense assessment unnecessary.

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The new Credit Contracts and Consumer Finance Amendment Regulations 2022

can be found here

The latest Responsible Lending Code can be found here

Details of MBIE's investigation can be found here

After the Government announced that the amendments would soon take effect, the New Zealand Bankers' Association, which represents the banking industry, said the changes to the Credit Contracts and Consumer Finance Act had been rushed. It stated bluntly that the CCCFA changes introduced in December last year had directly constrained the practical provision of consumer credit.

New Zealand Law Society chief executive Roger Beaumont also said the Government's rushed attempt to address the problem had not made applications easier for consumers seeking credit. “We do not believe the adjustments announced on 9 June will make much difference for most borrowers. This is because most existing requirements remain, meaning customers will still need to provide detailed information about their expenses, resulting in a more arduous application process and a greater likelihood of loan applications being declined. While we agree with the Government's goal of protecting vulnerable consumers from unscrupulous lenders, a blanket approach covering all lenders and all types of lending means banks no longer have the discretion or flexibility they once had. We look forward to the findings of the Council of Financial Regulators' ongoing review. We believe that by working with the Government and organisations such as FinCap, we can find a way to protect vulnerable consumers from unscrupulous lenders while ensuring less restrictive access to credit for those who can afford it.”

Mortgage Lab chief executive Rupert Gough recently wrote that the three provisions in the regulations he found most frustrating were:

1. Treating savings deposits and investments as ongoing expenses, meaning new homeowners could not redirect their regular savings towards mortgage repayments.

1. Treating past spending habits as future spending habits. For example, assuming that if you bought takeaways before owning a home, you would continue buying them afterwards; and

1. Requiring banks to demonstrate a “sufficient surplus” before lending, when there was no clear definition at the time of what constituted a sufficient surplus.

In his view, the easiest way to understand the profound changes to mortgage lending is to consider how difficult it is to obtain a mortgage on a scale from 1 to 10. Before the CCCFA reforms were proposed, the difficulty was around 6, meaning getting a loan was far from easy: owner-occupiers still needed a deposit of 10%–20%, while investors needed 40%. However, if you had a sufficient deposit and enough income to service a mortgage at around 6.5% a year, the process was much simpler. After the CCCFA changes, the difficulty rose to almost 9. In the worst cases, applicants had to prove they had not spent money on non-discretionary items, such as takeaways and coffee, for at least three months before applying.