Recent changes in consumer finance law on top of Government policy changes are locking many home seekers out of finance options they would have qualified for just six weeks ago, says Financial Advice New Zealand.

Chief Executive Katrina Shanks says financial advisers are extremely concerned the unintended consequences of the changes on those seeking to obtain finance for home/property ownership are putting many home seekers at a significant disadvantage.

She is reacting to a report published today by Centrix that shows the proportion of home loan applications that resulted in home loans fell from 36% to just 30%.

“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).

Mrs Shanks wrote to Commerce Minister David Clark on December 16 pointing out the issues and requesting an urgent meeting to bring him up to date with industry-wide concerns and examples of what is happening ‘on the ground’ but is still waiting for a response.

The letter said though the industry was fully supportive of measures to protect consumers, and understood the changes were intended to do just that, “the experiences of our members in implementing the changes are already showing that many consumers are now significantly disadvantaged and locked out of finance options.

“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.

“This is the perfect storm for home seekers’ ability to obtain credit.

“The changes in the CCCFA, which came into force on December 3, 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.”

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