Mortgage petition was created to change lending rules
Advisers and the mortgage industry have rejoiced over the recent changes to the Consumer Credit Contracts and Consumer Finance Act (CCCFA) being implemented from yesterday.
The amendments come after years of regulation that many in the industry found overly prescriptive on lenders, which hampered borrowing across New Zealand.
For John Bolton (pictured above left), founder of mortgage advisory business Squirrel, it marks the end of two and a half years of campaigning after initially launching a petition in 2021.
“It was a hard-fought battle, but we got there in the end,” Bolton said.
CCCFA reform goes full circle
On Aug. 1, mortgage advisers and borrowers alike woke up to a message from ANZ: “From today, lenders will have more flexibility in how they determine whether lending is affordable.”
“ANZ customers will find the process of applying to borrow money – whether it’s a home loan or a credit card – a little easier,” said Grant Knuckey, ANZ managing director, personal banking.
“The changes allow banks to have a more natural and constructive conversation with customers,” said Knuckey (pictured above right). “For those looking to use a loan to buy their first home, for example, the new rules should lead to a smoother application process.”
While the CCCFA has been around for over two decades, it wasn't until Dec. 1, 2021, that it became a major talking point again when the Labour government changed the policy.
Originally designed to protect vulnerable borrowers from accessing high-cost credit, the prescriptive lending requirements also removed lending discretion resulting in a move towards more conservative lending practices.
These revisions required lenders to follow a standardised method for assessing borrowers' ability to repay loans.
Bolton was immediately concerned that the changes would make it “too difficult to buy or finance a home”.
In what proved the correct, he predicted the changes would:
- significantly increased the process of a mortgage application
- Result in extra paperwork and fees passed down to consumers
- reduce the borrowing power for first-home buyers (FHBs)
- and affect the ability for homeowners to access bridging finance
Bolton launches a petition
Overall, the changes were not received and led to immediate backlash, with one adviser labelling it “the most draconian piece of legislation” they had ever seen.
These concerns, among many others, prompted Bolton to call on the industry to promote change through a petition.
The petition generated over 10,000 signatures, which he took to parliament to get the laws amended.
“This is our issue to own as advisers as we all understand this better than anyone. Nothing will change unless we lead this,” Bolton said at the time.
The evolution of the latest CCCFA reforms
In 2022, the then-government commissioned an investigation into the changes after industry pressure, leading to further amendments - the first of which came into effect on July 7 of that year.
By April 2023, the government backtracked from its original position, announcing new rules that explicitly excluded discretionary expenses from affordability testing.
However, the National Party thought even these changes didn’t go far enough.
With the National Party winning the general election in October, CCCFA reform was prioritised, and by April 2024, Commerce and Consumer Affairs Minister Andrew Bayly revoked 11 pages of the affordability regulations.
And while this was “only the first phase” of reforms, Bayly had previously told NZ Adviser that in his view, the CCCFA regulations should be tailored towards high-cost lenders (such as payday lenders), rather than banks and tier 2 products, such as credit unions.
Changes for home buyers
Dropping the prescriptive affordability assessment requirements is one of several recent changes to the home loan environment.
The rules mean a maximum of 20% of new owner-occupier lending can go to home buyers borrowing more than six times their pre-tax income.
Up to 20% of new investor lending can go to investors borrowing more than seven times their pre-tax income.
At the same time, Loan-to-Value ratios have been eased. Banks can now provide up to 20% of owner-occupier lending to those borrowing more than 80% of the value of the home (previously 15%).
Up to 5% of investor lending can go to investors borrowing more than 70% of the value of the property.
The Bright Line test to determine whether tax is payable on the profit from selling residential homes has been reduced from 10 years to two years.
The July 1 change applies to previous sales, so any home sold before July 2022 is no longer subject to the Bright Line test.
“Taken together, these changes are not expected to have a large impact on home affordability in an already tough economic climate,” Knuckey said.
“However, we welcome the CCCFA changes, which will help ease the process of applying for finance for New Zealanders.”
Vindicated: Common sense prevails
In short, Squirrel and Bolton also welcomed the changes.
“The new version of the Code strikes the right balance between reinforcing lenders’ responsibility to protect vulnerable borrowers and giving them room to decide how much caution to exercise (and how extensive their credit enquiries need to be) in determining whether or not a borrower meets affordability requirements,” the company said in a statement.
“Our lenders, particularly our big banks, are experts at this stuff, and so it feels appropriate that they be trusted to do this job—and do it well.
“It’s great to see common sense prevail in the end.”
