Eased Credit Contracts and Consumer Finance Act rules expected to improve efficiency, but not necessarily lift lending levels

Commerce and Consumer Affairs Minister Andrew Bayly assures, "It’s in no one’s best interest to loan money to people who cannot afford to pay it back.” Photo / 123RF

The days of lenders trawling through all prospective borrowers’ bank statements with fine-tooth combs, regardless of their circumstances, are over.

The Government has removed prescriptive rules from the Credit Contracts and Consumer Finance Act (CCCFA) to give lenders more discretion to weigh up whether someone can afford to take out a loan.

The change, which takes effect today, is expected to simplify the processes lenders need to follow, as well as remove some of the hurdles prospective borrowers need to clear.

This should reduce the time it takes to process loan applications.

Nonetheless, the rule change is unlikely to shift the dial on the sluggish housing market.

High interest rates are the real impediment, preventing people from being able to assure lenders they can afford to service debt.

Mortgage adviser Campbell Hastie said he recently told a client, who wanted to increase the size of their mortgage, that they didn’t stand a chance of getting this approved, as they’d struggle to even take out a mortgage the size of their existing one in the current, high interest rate environment.

While ANZ personal banking managing director Grant Knuckey, and Loan Market mortgage adviser Bruce Patten, welcomed the Government taking a knife to the CCCFA, they too didn’t see changes materially increasing the number of mortgages issued.

Even with interest rate cuts on the horizon, the housing market is dead, with the average mortgage holder paying 6.19% interest in May (according to the latest available Reserve Bank data).

In June, banks issued the lowest value of new mortgages for a June month since 2019, as the average property for sale sat on the market for 44 days.

ANZ economists revised their house price forecasts down again. They now expect prices to contract by 1% through 2024.

Nonetheless, Knuckey and Patten still welcomed the CCCFA changes streamlining their processes.

Patten said borrowers now need to say how much they plan to spend once they take on debt, rather than leave lenders to estimate what their spending is likely to be, based on what their bank statements show it had been in the past.

Patten said customers’ estimates would be compared to national averages, to check they were realistic. But brokers and lenders could ultimately make inquiries as they see fit, rather than be made to do the same checks for all borrowers, regardless of their circumstances.

Patten characterised the old rules as “completely and utterly over the top”.

Hastie, however, was less excited by the changes, saying that under the old rules, brokers could still go to banks and say their clients had agreed to change their spending habits once they took on a mortgage. Brokers could still work with clients and consider their individual circumstances.

Knuckey assured, “We [ANZ] will continue to be a responsible lender, as we always have been.”

While the CCCFA rules have been relaxed, lenders still have to comply with an updated Responsible Lending Code.

Commerce and Consumer Affairs Minister Andrew Bayly said the code managed the risk of unaffordable lending, while providing lenders with flexibility to assess affordability on a case-by-case basis.

“The CCCFA includes clear penalties for lenders who fail to make reasonable inquiries [with loan applicants],” Bayly said.

“It’s in no one’s best interest to loan money to people who cannot afford to pay it back.”

While the CCCFA has been praised by some for protecting people from predatory lenders, the financial services sector in particular has for some time criticised it for being too onerous.

The previous Government relaxed the rules in May 2023 and July 2022, acknowledging changes it made in December 2021 resulted in unintended impacts.

Further relaxing the rules fulfils part of the National-Act coalition agreement.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.