WELLINGTON (CU)_Last year, the government of New Zealand introduced new home lending rules, with the aim of protecting vulnerable borrowers who were taking out large loans as property prices continued to soar in the Pacific island. However, recent data shows that the Credit Contracts and Consumer Finance Act which took effect on 1 December, has had unintended consequences.
According to figures published by credit reporting agency Centrix, only 30 per cent of home loan applications submitted last month resulted in loans, a drop from 36 per cent prior to the new law. This suggests that lenders may be applying the rules so rigorously that many borrowers are being shut out of the housing market, an unintended result of the new regulations. Therefore, the Council of Financial Regulators has been requested by the government to launch an investigation to identify if lenders are implementing the new rules as intended.
“It may be that in the initial weeks of implementing the new CCCFA requirements there has been a decision to unduly err on the side of caution,” David Clark, the Minister of Commerce and Consumer Affairs, said. “An investigation by the Council of Financial Regulators will determine the extent to which lender behaviour, in respect of the CCCFA, is a significant factor in changes to banks’ lending practices.”
According to Katrina Shanks, chief executive of Financial Advice New Zealand, a professional body representing mortgage brokers and other financial advisers, while the industry supports the protection measures in the new law, it is evident that it has led to consequences which were not anticipated. “Some of the stories almost defy logic, like being refused a loan or having the amount cut drastically because you’re spending too much on coffees and takeaways,” she said. “We believe the intention of this legislation was not to reduce the availability of credit for the average Kiwi who was not vulnerable and could afford a mortgage previously.”
