One issue remains pressing …
Ahead of the 2023 general election, there are several ways that the incoming government could support the mortgage and finance industry, leaders say.
Financial Advice New Zealand sees a wind back of the Credit Contracts and Consumer Finance Act (CCCFA) as a priority, while the Financial Services Council supports new policies around improving financial literacy and capability to assist with decision-making and says that a review of KiwiSaver is now due.
ASB Bank would also like to see a return to the principles-based approach to lending requirements and intends to work with the next government on legislation around fraud and scams, collaboration and coordination among regulators, and climate change.
Whichever party is elected into power will be responsible for leading New Zealand out of a cost of living crisis, which in addition a period of aggressive monetary policy tightening, has put household finances under strain.
CCCFA legislation considered a priority
Financial Advice New Zealand CEO Katrina Shanks (pictured above left) said that despite several tweaks having been made to the CCCFA since changes were introduced in December 2021, there are gaps that still need to be addressed.
The financial advice member organisation sees the CCCFA as a legislative priority, she said.
“This was a poorly written piece of legislation which had significant unintended consequences … improvements have been made but areas still need to be addressed,” Shanks said.
Shanks said that the legislation did not adequately cater for payday lenders, and that further work was necessary.
“The issue which is still unaddressed is the behaviour of some pay day lenders … there needs to be separate legislation designed specifically for [these] lenders,” she said.
ASB Bank CEO Vittoria Shortt (pictured above right) said that the bank looked forward to working with the next government to accelerate progress for all New Zealanders.
Among the four areas that ASB Bank sees as requiring greater collaboration is the removal of the “prescriptive suitability and affordability” lending requirements, and a return to the principles-based approach in place before the 2021 changes.
“This would allow lenders to make sensible and safe credit decisions for customers and ensure access to responsible lending is not restricted for those we know can afford it, including unnecessary restrictions in times of crisis,” Shortt said.
Financial literacy, KiwiSaver, risk management
Financial Services Council CEO Richard Klipin (pictured above centre) said that there were three things the industry body for the financial services sector wanted the government to focus on: financial literacy and capability, a review of KiwiSaver and management of risk.
Klipin said that the current focus on hip-pocket issues and long called for spotlight on financial literacy was welcomed by the FSC leading up to election day. He also noted that FSC research continued to demonstrate that people were often making poor decisions or no decisions, and at times, the wrong decision in respect to their finances, such as panic-switching between funds during COVID-19.
The Labour government, which is seeking a third term in power, has said that it would require financial literacy to be taught at all levels in all schools by 2025, while the National Party’s Teaching the Basis Brilliantly plan would provide children with knowledge and skills in core subjects, requiring children at primary and intermediate schools to spend an average of one hour each day (a total of three hours) on reading, writing and maths.
Klipin told NZ Adviser that 16 years’ on from inception, a review of KiwiSaver was overdue, and that this should include contribution levels, purpose and focus and how the scheme interacts with other systems.
He also noted that Kiwis were generally underinsured for life and health insurance despite the increase in health issues, including mental health, and fire and floods. It would be important to work with government to get the settings right around the management of risk, he said.
Fraud and scams, collaboration, climate change
Shortt said that fraud and scams were a growing global problem and that conservative estimates showed they were costing New Zealanders at least $200 million per year, with victims suffering significant harm.
“The banking industry has committed to a coordinated, multi-sector approach to protecting New Zealanders and we need the government to take this seriously, work in partnership with the private sector including banks, and ensure the legislative environment is advancing to further protect New Zealanders”, Shortt said.
Additionally, the bank would like to see greater collaboration and coordination among regulators to reduce duplication, ensure that regulation is appropriately sequenced and to give the industry sufficient time to prepare for significant pieces of regulatory change, Shortt said.
“It’s been great to see the Council of Financial Regulators (CoFR) start to take on a greater coordination role and we welcome further efforts in this area.”
Shortt also referred to the importance of climate change, saying that it was “front of mind” working towards the first year of mandatory reporting for climate-related disclosures.
“The achievement of our long-term climate goals requires new thinking; new technology delivering timely and affordable decarbonisation solutions; consistent, long-term regulation; and crucially, support from both central and local government,” she said.
Shortt said that the bank had several ideas around collaboration among regulators that it would raise with the next government, and looked forward to discussions on how New Zealand could achieve its climate goals.
CoFI legislation
In relation to the Conduct of Financial Institutions (CoFI Act), which amends the Financial Markets Conduct Act 2013 to ensure financial institutions treat consumers fairly, Klipin said that the FSC had always believed in good conduct, and the onus on the sector to “do the right thing” by New Zealanders. Various political parties had touched on changing regulatory settings, and the FSC would enter those discussions once the new government is formed, he said.
The CoFI legislation is positive, he said, noting that at a granular level, there were a few aspects that could be made simpler to remove duplication.
“Right now, good conduct regimes support customers to make good decisions, support sector to do the right thing and we have a clear view that this is a good piece of legislation that fits in the right way,” Klipin said.
Financial decision on hold until election result
Commenting on the Reserve Bank’s decision to leave the official cash rate unchanged in October, Avanti Finance CEO Mark Mountcastle (pictured below) acknowledged that there was “significant interest in the outcome” and whether it would result in changes that could reduce the risk of further rate hikes.
Noting that demand for lending is usually derived from significant asset purchases, Mountcastle said that uncertainty tended to result in purchasers putting off their decisions, causing demand for borrowing to fall.
“This is a pattern we have seen since July and feel it is unlikely to recover to any great extent until the electoral uncertainty is resolved,” he said.
Float Mortgages financial adviser Naylon Cassidy (pictured below) said that more commercially minded clients were jumping into the property market now in anticipation of a change in government and the expected policy changes that would be put into force.
“Our expectation is that this will only grow over the coming months and years should there be a change of government, adding significant demand pressure to the property market,” Cassidy said. “The floods gates are probably going to open here.”
Twine Financial Advisers director and mortgage adviser Eugene Bartsaikin (pictured below) agreed that prospective homebuyers were taking a wait and see approach to the election outcome before committing to a purchase.
“We have the largest pre-approval pipeline we've ever had …not only are people waiting to buy but also to sell. As far as how this plays out for prices will be hard to tell, but without a doubt activity levels are picking up,” Bartsaikin said.
Shanks also said that the uncertainty of an election typically had a cooling effect on the property market.
“Purchasing a home is one of the biggest decisions a person will make and they need to understand the impact that a change of government will have on employment, inflation and interest rates,” she said.
Noting that “uncertainty breeds caution”, Klipin agreed that leading up to the NZ election, people were more hesitant about making big financial decisions.
“Clarity on October 14 will give people some certainty and likely a sense of confidence about direction,” Klipin said.
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