Mortgage brokers celebrate changes to controversial lending laws
Changes are coming for controversial new lending rules, which could mean banks aren’t required to carry out such scrutiny of borrowers’ current spending behavior.
Trade and Consumer Affairs Minister David Clark said the government was updating the rules, which have been accused of “squeezing credit” on first-time home buyers in particular.
The rules were introduced as part of an effort to protect vulnerable borrowers from loans they could not afford.
But mortgage advisers and opposition politicians claimed they were having unintended consequences and urged banks and other lenders to become ‘ultra-conservative’, turning down loans they would have made before. People have reported being turned down for things like spending too much on a dog.
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John Bolton, chief executive of mortgage brokerage Squirrel, which led the campaign to get Clark to make changes to its new laws and regulations, said: “They listened. They heard. They made the appropriate changes without throwing the baby out with the bathwater.
“These changes address the immediate problem. It’s a good result,” Bolton said.
Roger Beaumont, chief executive of the New Zealand Bankers’ Association, said: ‘We believe they have identified some of the key pain points for consumers, but it is not clear that the changes announced today will do enough to move the dial to make a difference.
“More details are needed to see how the changes will actually work.”
How do I organize my expenses to impress the banks? New figures released by the Reserve Bank show lending across the board fell by $1 billion.
Clark said planned changes to the new lending laws clarified that when borrowers provide a detailed breakdown of future living expenses, lenders don’t need to inquire about current expenses from recent transactions.
Brokers had complained that banks had assumed current spending would continue once a mortgage was issued, leaving borrowers no leeway to adjust their spending when they had a loan to repay.
Lenders also didn’t need to count savings and investments as expenses, Clark said.
Some people had said having a higher KiwiSaver contribution rate as they saved a deposit had counted against them, as banks calculated how much they could afford assuming the contribution level would hold.
The obligation to obtain sufficiently detailed information would relate only to information provided directly by borrowers and not to information extracted from bank documents.
The government was also given alternative guidance and examples where it was “obvious” a loan was affordable, he said.
Clark ordered the inquiry into whether adjustments were needed to new lending laws and regulations, which were introduced in early December as part of the Credit Agreements and Consumer Credit Act, in an effort to protect vulnerable borrowers from unscrupulous lenders.
“The changes we’re making are informed by feedback I’ve received from banks, other lenders and consumers and respect the spirit of the law,” Clark said.
This included direct feedback from bank chief executives in face-to-face meetings.
“These initial changes ensure Kiwis ready to borrow can still access credit as we continue to protect those most at risk from predatory and irresponsible lending,” Clark said.
“There is no doubt that banks, budget advisers and the government are all on the same page when it comes to supporting the intention of the law, we want to prevent vulnerable people from ending up with unaffordable debt. .”
Clark said he detected “little enthusiasm” for sweeping changes to the law, but a preference for practical changes to be made to ensure the legislation’s goals were met.
But a wider investigation into the implementation of the amendments continued.
Clark said investigations had shown no reason to believe the rule change was the main driver of the decline in lending that had been recorded and that seasonal movements could be a factor.
There were $4.667 billion in loans issued in January, down from $4.714 billion last January and $9.084 billion in November, before the rule change took effect.
“It’s also important to note that banks may be managing their lending more conservatively and this is likely due to global economic conditions.”
The changes coincided with rising inflation, interest rates on home loans and restrictions on low-deposit mortgages by the Reserve Bank of New Zealand Te Pūtea Matua.
Critics of the changes, including bank chief executives, said they made it harder for non-vulnerable borrowers to get mortgages and other forms of bank debt.
The data was released by Centrix, which appears to show the biggest impact has been on people with credit scores above 700 or more.