The following statement was issued by Commerce and Consumer Affairs Minister David Clark early on Friday morning.
The update to the responsible lending rules follows criticism of changes to the Credit Contracts and Consumer Finance Act as recently as December 1 last year.
The proposed changes should take effect by early-June.
Govt updates responsible lending rules
·Clarifying that when borrowers provide detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
·Removal of regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into
·Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records.
·Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable
The Government is making practical amendments to responsible lending rules to curb any unintended consequences being caused by the Credit Contracts and Consumer Finance Act (CCCFA), Minister of Commerce and Consumer Affairs, David Clark announced today.
The Act, which came into effect on December 1, 2021 requires lenders to follow a robust process and ensure that lending is affordable and suitable.
“The amendments we are making are informed by the feedback I received from banks, other lenders and consumers and sit comfortably within the intent of the Act,” David Clark said.
"These initial changes ensure borrower-ready Kiwis can still access credit while we continue to protect those most at risk from predatory and irresponsible lending.
“There is no question that the banks, budget advisers and Government are all on the same page when it comes to supporting the intention of the law – we want to stop vulnerable people from finding themselves with unaffordable debt.
“Following my meetings with the banks at the end of last month to hear their concerns, I detected little enthusiasm for wholesale changes to the Act, but instead a preference for some practical amendments to be made to ensure the purposes of the legislation are best met.
“Meanwhile, a broader investigation, led by MBIE and the Council of Financial Regulators, into the early implementation of the CCCFA amendments is ongoing.
“Thus far investigations have thrown up no reasons to believe the CCCFA is the main driver in reduced lending. The Reserve Bank’s December figures highlight seasonal variation as a prominent contributor. In fact, December 2021 was still above trends from the same month in 2017, 2018 and 2019.
“It is also important to note that banks may be managing their lending more conservatively and this is likely due to global economic conditions. And that a number of factors affecting the market have occurred at the same time as the CCCFA changes, including increases to the OCR, LVR changes and an increase in house prices and local government rates.
“It must be stressed, today’s changes are not the final word and any further changes to credit laws and the Responsible Lending Code will be considered as part of the remainder of the investigation which is due next month,” David Clark said.
Notes:
- The proposed initial changes to the regulations and Responsible Lending Code, agreed to by Cabinet, are:
- Removing regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into when assessing the borrower's future expenses.
- Clarifying that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions.
- Clarifying that where lenders choose to estimate future expenses from recent bank transaction records, they are permitted to obtaining information about how their current expenses are likely to change once the contract is entered into.
- Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records.
- Providing further guidance on when a lender needs to allow for a ‘reasonable surplus’ (the amount left over when the borrower’s estimated expenses are subtracted from their income) and how lenders should set surplus requirements.
- Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.
- MBIE will engage with key stakeholders and consult on these initial proposals.
116 Comments
The auction rooms will be happy about that.
I don’t see this as a bad thing. Let’s hope an official DTI is in place sooner rather than later. I personally x5 would be the sweet spot. Still high by 1st world standards but we seem to work outside the norm with our property market. The main driver behind affordability will be interest rates, that’s going to be the real drag on prices
So just as I predicted with only single digit house price gains this year ? Its getting impossible to predict the events on the way, only the final outcome. Is as good a guess as any, especially with the interference from the government and RBNZ to keep the ball rolling.
The "unintended consequences" the Govt were clearly & repeatedly warned of by the banks during consultation on the legislation.
And ignoring the Acts novel blameshifting to the bank officers personal & unindemnified liability for making a loan that a debtor doesn't pay.
Since this change doesn't alter the director and senior manager liability under the Act, I suspect we won't see a sudden rise in loan approvals. They didn't have to do a deep dive on past finances before, and they still don't now. It was just an easy excuse for them to turn down any application.
Skin in the game like this?
https://www.zerohedge.com/commodities/jpmorgan-bails-out-chinese-nickel…
https://www.zerohedge.com/markets/chinese-tycoon-who-faces-8-billion-ma…
https://www.bloomberg.com/news/articles/2022-03-08/lme-suspends-nickel-…
If the banks are sure their lending practices are sound why would they fear any penalties? I'm still thinking there has to be a point where the can can't be kicked any further and the froth has to come off, everywhere. Maybe the banks know this too but the CCCFA makes a better scapegoat.
Looks like the Government and RBNZ can see the storm coming for the housing market so are loosening restrictions again to try and keep the debt party going. Given the high inflation coming in, higher interest rates and global credit tightening, these changes may not be enough to revive things.
It would make no sense to loosen LVRs in an environment of falling house prices. That would just increase the probability of critical levels of negative equity being reached. LVRs are there to promote stability of the financial system, not directly impact house prices, although that is of course a secondary effect.
I thought the problem was people being less than honest on applications with regards monthly out goings. So banks had to use verification in formal documents like bank statements. Does this mean that the government prefers the garbage on the application form over the reality of the bank statement. The capitaled class is desperate to keep the ponzi going.
I haven't been able to go through a loan application without using bank statements. I'm not sure how you would have managed that without supplying statement data for a while now; years prior to the CCCFA. The mandatory interrogation of spending and intensity of it to satisfy the CCCFA liability issues were the main changes.
I can't fathom how you are so wrong... they were the primary targets of the CCCFA.
https://www.consumerprotection.govt.nz/general-help/ways-to-buy-and-pay…
"All mobile traders are now treated as creditors and covered by the Credit Contract and Consumer Finance Act for high-cost loans. "
https://www.savemybacon.co.nz/how-are-payday-loans-regulated-in-new-zea… (to save you clicking the link, the answer is .. the CCCFA )
If I go into hospital and they ask me what medication I am on and I just make some crap up, is it the hospitals fault for believing me? Should they refuse to treat me until I prove it? This is legislation to protect people from loan sharks, its not to protect people from their own lies.
House prices will continue to fall until average wage earners can afford to buy a house, so in Auckland a 50% drop is where this market will settle with interest rates raising it could be a bigger drop . Inflation is hurting people’s pockets you would be crazy to purchase right now just wait a year or two a huge sale is just starting.
Those marginal loans from a year ago look way out of their depth now with 7+% inflation and a 2% OCR by the middle of the year and thats only for new loans.
There is supposed to be a large % of borrowers needing to re-fix this year and there might be a few challenges ahead for those people too...
That prediction may or may not happen, but if it did no one will be able to buy a house unless you have $$ on the sidelines. We will be in a recession and not many average wage earners will be able to afford to buy a house when unemployment is high including the high interest rates, inflation etc etc.
It will happen over next couple of years if average wage earners cannot afford to buy who will. Any one who has bought in last 3 years will find deposit gone and be in negative equity hopefully it will not hit economy to hard as a lot of buyers made money on way up and speculators take that risk and should not be caught out by FOMO.
Who are you blaming though, the government ministers or MBIE? I doubt government ministers have time to check the finer details, and these do look like the finer details they are tweaking.
Personally I don't like the whole concept, you should be responsible for your own dumb decisions. But most would disagree with me.
This is what Ministers are paid for! Oversight and governance, as well as high level policy leadership. This piece of legislation was a disaster because Fa’afoi doesn’t want to be there. It’s also why Immigration is a disaster. Unfortunately, outside of Robertson and Hipkins, the Government’s depth chart is extremely shallow.
Not in Auckland. For example, take a below-average $1 million house. Rent would be around $600 per week, whereas the interest on an 800k mortgage is around $760-920 per week at 5-6%.
So in order to pay the same in interest, the mortgage needs to be around $600k, meaning a much lower quality house (or in a much less desirable location). The math only works in favor of the house if you treat it as an investment and assume that growth (including the leverage) will keep beating other investments. In other words, speculation.
And then the FHB also needs to consider other costs such as rates, insurance and maintenance. Renting is quite cheap in the current environment, compared to owning.
Our mortgage repayment went from $2900 / month (2.09% for 1 year), to $3700 / month when we re-fixed for 4.89% for 5 years last month.
We were paying $900 in interest before, and pay $1900 in interest now.
We had been paying $2100 / month in rent before we bought. The place we had been renting now goes for $2600 / month.
So $1100, plus $300 for rates, more per month but we get our own 4-bed house instead of a 3-bed rental, and when we do finally move out we'll get something for it rather than nothing at all.
Add maintenance and insurance to your out-goings and you are financially worse off on your numbers. And mortgage rates are looking to settle close to 6% over the next year or two which further shifts the calculus to renting.
Unless someone needs the security of owning their home, renting will be the best option in the near term for most people until house prices come down 30%+.
I accept that there are counter-examples, but it sounds like you're not in Auckland, or had more than 20% deposit. 700k mortgage on a 4br?
Also, the new price of that rental is odd... I pay $600 per week on a rental that's estimated value is $1.25 million. Several other rental options at similar prices in the area. Comparable houses were going for $1.1-1.5 million in December.
I’m a little frustrated the banks have said jump and the government has said how high. But, the changes look benign. The critical detail will be guidance about the necessary buffer. We shouldn’t lose sight of the fact that the combination of actions - CCCFA, LVRs, higher interest rates, and looming DTIs - is having the desired effect. We need to keep up the pressure and make housing affordable again.
MBIE / BRANZ are bringing in a whole NEW level of admin for houses - Complete carbon calcs for all materials, delivery, building, use and EoL. Councils will need new departments. Every manufacturer will have added costs. For what gain? We still don't know if temperature leads CO2 or the other way around.
Insulation is being double this November.
$10,000+ consent fees for 95sqm houses.
New house prices are simply not going to come down.
Link?
Runs smack bang into the BOM conundrum. Carbon content for a single component will vary according to origin, mode of transport, trustworthiness of the certification, modifications on site, whether component is itself kitted, and no doubt much else⁹.
Consultant's dream. Benefit: negligible....
Personal example. I have 3 packs of 140x45 joist timber at the front of a long drive. Delivered to Kaikoura from Blenheim Mitre10 as a small part of a much larger load, on a hiab truck which could not negotiate the drive. So, packs need to be maneuvered 60m up a tight, doglegged drive, with a diesel mobile crane. Now work out the carbon content of That. One delivery.....
Not really, housing is a bit of a doom loop really. If materials go up then the house prices go up. If people cannot afford them then less houses would get built holding the price. Even if building stopped house prices go up. I'm just awaiting the next phase of the border reopening because immigration is by far the biggest house price driver. New build completions in Auckland is now falling.
I know of 8 young people personally who are leaving NZ to get ahead. They have lost any hope of owning their own homes and to a person they are all hard working, are either professionals or tradies and they are saving. This country has got too expensive. With our poor incomes by international standards why would you not leave. Us boomers have created a problem through our greed. Get used to children and grandchildren living on foreign shores.
It’s people holding themselves hostage. The property investors convince the masses that they are better off when property prices rise. Then the masses fight their battles for them. That’s why you always see articles on the Herald about the trials of FHBs and renters. And the solution is always loosening rules for investors and lowering their taxes. This site stands out as one place that accurately talks about the relative advantage to first home buyers.
Retraction coming from the minister?
https://www.stuff.co.nz/business/127649621/banks-deny-ministers-irrespo…
This seems crazy. At least under the previous rules banks would assess how prudent people were with their money when giving out loans. Surely this is judging loan affordability for the individual? The amended rules basically say "don't assess the individuals ability to pay, other than their income and big expenses. Assume everyone spends the same", which is pretty crazy.
I voted Labour last election and I don't regret it. I've voted NZ First, voted Key's National and National in earlier times. I regretted voting Key though. Many elections where I didn't vote any and would've preferred a "none of the above" option.
Does anybody know what the role of government is anymore? Is it to govern the people or represent them in regulating the "free" market to act in the interests of the people?
I voted Labour. They have achieved nothing
This is a clear signal from the government as to their intent. If I were a 1st home buyer (with a deposit) , I’d move ahead with a purchase based on these signals. If I were a property investor, I would ride it out and hold. I’d prefer a crash but these are indicators of a government that is motivated to save the housing market regardless of the social costs. Emigration is the only way for young folk starting out, it’s not a level playing field
Yep agree with others assessments - this is hardly likely to push housing prices higher, what the banks aren’t telling you is they are currently assessing repayment ability at higher interest rates than last year. As interest rates rise that assessment interest rate will also rise
for every 1% increase in rates - lenders will lend roughly 100k less. So a preapproval this time last year for 750k is likely to now only be $650k. If interest rates rise 3% as predicted by ANZ - this will take 300K per loan out of the market.
A couple would have to get a 40K increase in income between them to still borrow the same amount if interest rates rose 3%
This law is hardly political. It is all about kowtowing to the Big Banks who ship their billions overseas and wag their fingers menacingly at whatever government is in their way to protect their party. Clark is just a lapdog of Mike Hoskings and whoever will toss him a bone. National's eager new pup in the blue suit who 'knows business' is just as prone to licking boots.
I owned my own home and rental property. I sold on predictions from ALL the banks saying a 20% drop in house prices in March 2020. Now am renting (no regrets, my investments have kept pace with house prices and I am way more flexible with more options) BUT I have now seen the quality of Auckland rental properties. I am still in shock 2 years later. The quality is terrible, (not all, but a lot) which in of itself is not the problem. To me it's that fact that NZ has an extremely LOW average wage and is at the very TOP of international housing unaffordability. So Kiwis are paying too much for too little. The developers and the banks are making all the money, average Kiwi families are being taken for a very long ride, and we still cannot see the light at the end of the tunnel. It's very dark in there and someone else is hogging the torch. I wonder who?
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