How will the CCCFA changes affect advisers?

Changes to the CCCFA will come into force on December 01, 2021, and lenders will have to get tougher on how they assess the affordability of loans for borrowers - and for advisers, this is likely to mean a longer and more complicated application process.

From December 01, lenders will no longer be able to rely solely on the information provided by the borrower around their income and expenses, and they will need to prove that they have made “reasonable inquiries” about the affordability and suitability of the loan before they can give approval.

They will also need to keep records of their ongoing compliance with the CCCFA, demonstrate that their fees are “reasonable”, and clearly advertise high-cost loans as being for short-term cash needs, rather than for long-term or regular borrowing.

With increasing scrutiny and documentation, advisers are bracing themselves for a more complicated application process - however, Squirrel’s John Bolton noted that this may in fact be good news for advisers, as it will drive more customers towards the adviser channel.

Read more: Mortgage advisers to benefit from CCCFA lending changes, expert claims

Mortgage brokerage Global Finance also noted that the CCCFA will not actually change the lending criteria of the banks, but it will place a higher standard on evidence of a borrower’s ability to repay a loan. Lenders will place higher scrutiny on things like casual spending habits, along with “traditional expenses” such as interest rates, water and power bills, and transport costs.

“If you don’t have all your t’s crossed and i’s dotted, the new Act could slow the whole application process down,” Global Finance said. “But the key takeaway here is that the loan criteria itself is not harder.”

“Banks will ask customers to evidence their income in minute detail, possibly even including a letter from your employer,” it explained. “If you own your own business, you’ll need an evidentiary trail of income derived from that business.”

With a stronger focus on repayment ability, Global Finance noted that age will also become a factor that lenders look at, and although declining a loan solely on the basis of age will not be allowed, borrowers over 50 may still have a more difficult time securing a loan.

“If you’re over 50 and wanting a mortgage, banks will be concerned about how the loan is to be paid off,” it said. “At this stage of your life, you’re probably in your prime financially, but banks may assume you will no longer be working before the loan is paid off.”

On the lender side, Basecorp Finance chief financial officer John Moody said that the scrutiny of affordability will increase for the non-bank sector, as well as for the main banks. However, he said that advisers have been well prepared for the changes, and that Basecorp is looking to maintain a “flexible and pragmatic” ending policy within the boundaries of the new rules.

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He noted that Basecorp would also be maintaining a competitive interest rate strategy, despite a hike in the OCR in September.

“The CCCFA changes will mean that there will be a lot more internal scrutiny on borrowers’ levels of income and expenses, but we also want to maintain a very pragmatic and flexible lens by which we view this,” Moody said.

“So, advisers will see a bit more focus on levels of income, how sustainable those income streams are, and what borrowers’ expenses are and how the application forms have been completed. What I would say is that none of these things will be a surprise to advisers - that’s the message that they’ve been hearing from both the banks and the non-banks for some time. Our view is that we wouldn’t be a responsible lender if we weren’t conveying those messages.”

“Our position is that we’re not competing with the main banks - we’re a solution for when main bank funding isn’t available,” he added.

“That said, our current rates are 5.49% - 6.49%, and we’re looking to maintain those for the longer term, subject to the OCR not moving materially. We certainly looked to absorb the first OCR movement in September, and as we see floating rates rise around us, that will naturally make us more competitive and enhance our proposition for the adviser channel.”