Industry head demands government meeting after marked drop in level of successful mortgage applications
Financial Advice NZ CEO Katrina Shanks has spoken out further about the recent changes to consumer finance policy and requested an urgent meeting with ministers to discuss a marked fall in successful home loan applications.
Read more: Home loan approvals drop amid tightened CCCFA regulations
The new Credit Contracts and Consumer Finance Act (CCCFA) has seen successful applications drop from 36% to 30%, with advisors now worried about the knock-on effect that a lack of access to finance could have on the ability to Kiwis to buy homes.
“This comes as no surprise to Financial Advice NZ, which has been reporting mortgage adviser are seeing a significant reduction in pre-approvals not being renewed and lending levels to all borrowers being cut due to the new requirements of the Credit Contracts and Consumer Finance Act (CCCFA),” said Shanks.
“At the end of last year, we surveyed our mortgage advisers and within two days had 300 examples of reduced lending due to the changes in the CCCFA, the change in Loan-to-Value Ratios, the increase in interest rates, and the debt-to-income ratios that can be applied by certain lenders.
Read more: Auckland property prices likely to fall in near future
“This is the perfect storm for home seekers’ ability to obtain credit. The changes in the CCCFA, which came into force on December 03, were the icing on the cake. They have changed significantly the process of obtaining credit.
“Borrowers who could previously obtain finance and service those payments for their home are being locked out of obtaining finance in the future.
“Lenders now have additional obligations when determining affordability and the suitability of a loan.
“This has resulted in them having to review clients’ income and expenditure in much greater detail, and they are now determining expenditure previously considered discretionary as non-discretionary in order to meet the new requirements of CCCFA.
“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.
“For many Kiwis all this means that they can no longer obtain a mortgage at the same amount of credit as previously would have been approved.
“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.
“The unintended consequence of the new legislation is the average Kiwi has less access to credit and will have limited ability to borrow to a level which was affordable before the law change just six weeks ago.”
