New Lending Rules -
The Inside Scoop on CCCFA Changes
It’s finally happening - the changes that the Minister of Commerce and Consumer Affairs announced in March to the CCCFA regulations and Responsible Lending Code have now been finalised, and will come into force on 7 July 2022.
Long story short, banks have been told they can take someone’s word that they will cut spending when they get a mortgage and that regular savings do not need to be classified as committed regular expenses.
While this is a step in the right direction, the changes generally reflect many guidelines and processes already being followed, and aren’t likely to solve all the problems Kiwis are facing while trying to secure lending. However, there have been some substantial changes surrounding expenses which are likely to bring some relief to both borrowers, brokers and even banks.
What are the most significant lending changes?
- Client savings and investments will thankfully no longer be considered outgoings that will count as expenses
- When clients provide a detailed breakdown of their future living expenses, these will be compared and averaged out against statistical data as opposed to the banks arriving at this figure solely based on bank transactions
- Lenders will no longer need to inquire in detail into current living expenses based on recent bank transactions that are considered “standard”
- When lenders compile estimate expenses from recent bank transactions, they can factor in how the borrower’s spending habits are likely to change if the client were approved for lending - for instance, if you were taking on a $1,000,000 mortgage, your broker can now notify the bank that you would cancel Friday takeaway night and put a hold on your trips to K-Mart to spruce up your spare bedroom
- On a discretionary, case by case basis, banks can now determine that a “reasonable surplus” is not required for some clients if buffers have already been added to income and expenses
- In certain circumstances based on your application, banks can look at alternative methods when your broker makes it clear that the client can afford the lending they applied for, and therefore not require a full income and expense assessment
On the flip side of the changes however, the bad news is that banks have all increased their stress test interest rates given the OCR rises. This means some have jumped from assessing a client's affordability from say 5% to 7.6% for a home loan. Naturally, this will decrease borrowing power but is not actually a bad thing as New Zealand's inflation is rising, and it makes sense that the banks want to ensure clients can make their repayments even if interest rates rise to 7.6% over the next few years.
These changes can be a lot to take in, adding to the already complex process of trying to get your mortgage sorted. If you're stuck on how long to fix your loan for, take a look at our "How Long Should I Fix For?" blog. The good news is that by working with a Buddy advisor, they will act on your behalf to navigate the difficult landscape and go to bat for you when it comes to any interrogation from lenders around your application. More often than not, your Buddy advisor can even front foot most of these inquiries and provide any necessary explanations to the bank in advance of their queries, which significantly speeds up the process of getting your application approved.
If you're looking to refinance, purchase an investment property or secure your first home, it's a great time to book a chat to review your situation and what these changes mean with Buddy - just click here to book an appointment.
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