Financial Advice New Zealand chief executive Katrina Shanks said the changes were supposed to protect vulnerable borrowers from unscrupulous lenders, but had unintended consequences, putting would-be borrowers at a big financial disadvantage.
She said a survey of mortgage advisers identified a significant reduction in pre-approvals not being renewed and cuts to lending levels because of the new requirements of the Credit Contracts and Consumer Finance Act (CCCFA).
"Within two days we had 300 stories of clients who had not been able to obtain a mortgage or it had been more difficult, or had been reduced, or declined altogether," she said.
"The issue with the CCCFA is that it's a very wide net that's captured all New Zealanders, not just those who are vulnerable. It's made the affordability test so hard now that the average New Zealander who was not vulnerable cannot obtain the credit they could previously."
In some cases, Shanks said banks were refusing loan applications or drastically cutting the amount they would lend because people were spending too much on takeaway food and coffees.
Centrix managing director Keith McLaughlin said there had been a dramatic drop in the number of loans since the CCCFA came into effect on December 1.
"The early signs are that the market is struggling with managing the new CCCFA legislation," he said.
"It's causing a delay in the processing of applications, it's increasing the cost, it's increasing the disclosure that's required by the borrower and ultimately those costs will be passed on to the borrower."
Shanks has written to Commerce and Consumer Affairs Minister David Clark asking for a review of the legislative changes.
Act leader David Seymour has called for an inquiry, while chief executive of mortgage brokers Squirrel, John Bolton, has started a petition to Parliament because he believes the legislation could make many borrowers turn to lenders of last resort.
Credit reporting company Equifax separately found consumer credit demand plummeted by more than 30 per cent in the three months to December, while demand for home loans dropped by 35 per cent when compared to the same quarter in 2020.
Equifax New Zealand's managing director Angus Luffman said the plunge was predominantly caused by lockdowns.
"Extended lockdowns in Auckland have impacted demand leading to big declines across all major retail credit products," he said.
"The percentage falls are exacerbated by the huge volume of home loan enquiries recorded in the December 2020 quarter. Demand reached fever pitch during this period, so it's important to factor into the equation."
- RNZ
