Those interested in whether Commerce and Consumer Affairs Minister David Clark will respond to calls for him to loosen new consumer lending rules don’t need to wait long to get a steer on whether he will budge.
A group of government regulators, led by the Ministry of Business, Innovation and Employment (MBIE), will provide Clark with preliminary analysis of the Credit Contracts and Consumer Finance Act (CCCFA) by mid-February, ahead of delivering a final report in April.
The law is being reviewed only two months after it imposed more prescriptive requirements on lenders when they assess loan applications.
The review follows an outcry from bankers, mortgage brokers and hopeful borrowers who have had their loan applications declined, reportedly after having had their spending habits scrutinised with a fine-toothed comb.
Clark: Impact of CCCFA changes may be exaggerated because some banks weren't complying with the old rules
Clark told interest.co.nz, “As an aside, I have asked the heads of the country’s major banks to meet with me this week.
“It is important we get to the bottom of exactly what aspects of the CCCFA responsible lending rules were not being adhered to by some banks previously. Anecdotal evidence to date suggests the new lending requirements have presented a greater challenge for some parties.”
Potential outcome of review: Do more to understand impacts of CCCFA
The review’s Terms of Reference confirms MBIE, which led the 2018 review of the old law that preceded the current Act, will be the lead agency in the Council of Financial Regulators review. The Council is also comprised of representatives from the Treasury, Reserve Bank, Commerce Commission and Financial Markets Authority.
The Terms of Reference says, “The objective of the investigation is to identify any impacts of the recent CCCFA changes that came into force on 1 December 2021, considering the scale and nature of the impacts, to assess what, if any, further actions are needed…
“A potential outcome is that more work will likely need to be done to fully understand actual impacts.”
The Terms of Reference says the scope is to investigate the “intended or unintended impacts, beyond those expected by the initial implementation” of the law change, “primarily in relation to mortgage, but also other lending, by banks and nonbank lenders in the current consumer credit market”.
The Terms of Reference notes, “Consumer credit markets (particularly the home loan market) are affected by a range of factors, such as house prices, seasonality, loan to value ratio limits and the official cash rate. We need to control for these factors to determine what impact the CCCFA may be having. Changes in the global context and consumer lending behaviours may also be relevant.”
MBIE says the point of the initial 2018 review of consumer lending rules was to “better protect Kiwis from debt spirals and predatory lending”.
Difficult at this stage to isolate impact of CCCFA changes in December data
CoreLogic Chief Economist Kelvin Davidson said the CCCFA “probably” affected mortgage lending in December 2021 - the month for which the latest bank and non-bank lending data is available.
“But it’s hard to know its relative importance, when you’ve also got tighter loan-to-value ratio restrictions, etc in the mix too," he said.
New Zealand's total housing lending stock (covering bank and non-bank lenders) was $331.0 billion as at December 2021. The value rose 0.7% from November 2021. This was a slightly smaller increase than the 0.8% average monthly growth rate in 2021 and the 1.1% increase between November and December 2020.
Growth in housing loans on issue by non-bank lenders increased more than bank loans, albeit from a much lower starting point.
The non-bank housing lending stock as at December 2021 was $5.0 billion - 3.3% more than as at November 2021. This was above the 3% average monthly growth rate in 2021 and a higher rate than the 2.4% increase between November and December 2020.
Meanwhile, the consumer lending stock (including banks and non-banks) as at December 2021 was $13.9 billion - 0.1% more than as at November 2021. The value of consumer loans on issue fell by 0.1% between November and December 2020.
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“It is important we get to the bottom of exactly what aspects of the CCCFA responsible lending rules were not being adhered to by some banks previously. Anecdotal evidence to date suggests the new lending requirements have presented a greater challenge for some parties.”
How do you adhere to rules that previously doesn't exist in the framework of requirements!
If this is the logic of a policy maker who makes laws for the country; we as a country is indeed in trouble.
Here are the list of questions for the minister,
- Is he aware that a substantial cost is involved in the change in information enquiries that will be passed on to the borrower- therefore it's the borrower that he seemed so eager to protect is bearing the brunt?
- Does he know that the interest rates on borrowing will be increased because the previous rates were based on the old model of applicant declaration as well as basic borrower checks?
- Is the minister aware that the new CCCFA would mean that lenders will now be even more risk adverse beyond the risk posed by the borrower and more on regulatory risks?
- Does the minister have empirical evidence of predatory lending is an issue country wide before the legislative change and does he have a target for the reduction of predatory lending post legislation?
- Is the minister aware that the new legislative increased the risk of a credit crunch in the national economy as lenders turned risk adverse?
By the time we have the preliminary report back from the agencies, we may very well be on our way into economic recession championed by this piece of poorly thought through legislation.
CWBW - What are your questions based on - do you have any evidence that this is happening or are just guessing it will? What stats do you have showing the direct impact CCCFA has had? Have you been personally impacted hence why you're so upset, or do you know of real world cases with full detail?
CCCFA and responsible lending always required lenders to check affordability, hence why banks may not have been doing what they were meant to be doing. Perhaps it was no fault of their own given the law wasn't clear, but now CCCFA has been amended it is clear...
Nifty, the evidence is out there if you decide you want to have a look. Tony Alexander, for instance, provides monthly information. And it appears that from his questionnaires, it has become much, much more difficult to get a mortgage, and first home buyers are suffering the most. And this is a direct result of a Minister and a Government that is inept. Because they have made Directors and Senior Management personally liable (and are unable to insure themselves against) for loans given to people that may not be able to pay, they will be way over cautious, as they are protecting themselves. You probably already know, but the advice given to Clark and Cabinet, was that the CCCFA would cause major issues and shouldn't be proceeded with. But as is standard with this bunch of University Politicians, they know better.
And before you ask, I am personally impacted. I have several properties, a couple with mortgages (with the same bank I have banked with for 25 years, and paid back multiple mortgages). One came due, and all I wanted to do was split it into different terms and P&I and Interest only. I would have had to go through the whole CCCFA gamut to do this. So, I avoided it by just continuing the mortgage in total. So a joke really. There are multiple stories from investors in a property group I belong to about how difficult it now is.
"and first home buyers are suffering the most."
no they will be suffering by taking debt they can't afford hoping to onsell it to the next fool that can afford it either.CCCFA is the best thing possible for fhb. the ones suffering will be vendors trying to get rid of their supposed $2m houses
My understanding is that you think that FHB won't purchase at an inflated price, prices will go down as the vendors meet the market and then FHBs will be able to purchase those assets at a discount. My instinct, however, is that those with fat wallets are continuing to buy and can easily meet CCCFA requirements. In the event asset values fall, these assets will still get swallowed by those with good equity and cashflows as FHB cannot compete with them. FHB will continue to miss out, even if prices and debt levels are less, further entrenching inequality.
And of course it is the Governments job to protect people from their own stupidity. Yeah hum, that makes complete sense. After all, the Government keeps making stupid rules to protect stupid people, and lo, stupid people find a way to continue screwing themselves over. And your last para gives away that you don't own a home. Good luck getting one tho.
But it doesn't sound like your lending was affected in any way - only the way you structured it, and only because it sounds like you couldn't be bothered going through the process. Which is your choice, but claiming you've been 'personally impacted' seems a bit of an overstatement.
Because they have made Directors and Senior Management personally liable (and are unable to insure themselves against) for loans given to people that may not be able to pay, they will be way over cautious, as they are protecting themselves.
This actually seems the best part of the legislation.
Nothing wrong with a bit of personal responsibility and putting one's money where one's mouth is. If the banks deem the lending to be responsible then the directors have nothing to fear from personal responsibility. Their word is their bond.
The greedy Property industry are mainly concerned with two things.
Limiting borrowing that slows the crazy ponzi scheme that could send prices crashing and fees.
Consequences on mortgage application, $200K-600K fine, even jail time, ending independent mortgage brokers constant fiddling of the loan application.
These are good rules to curb an economy reliant on credit growth and peoples need for affordable shelter.
Inflation is at 6%. That is a figure manipulated down to beget low interest rates. It is probably closer to 10 % if not higher.There is no objectivity in the calculation, no peer review, just a made up figure created by people with the clear instruction, 'we need a low number, bend it anyway you must but it must be low'.
Even with this fraud at the centre of the equation, interest rates should be higher.. 8% if you hope to pull back inflation...
But will it happen, I think not.. they would rather every New Zealander take a 6% pay cut than ask a few property investors to pay the right amount for the money they borrow. This is the debate to be had, not bleating about the fact that someone cant borrow a million bucks to buy a house that anywhere else in the western world would be worth 200 k
I find it amusing that the way government are trying to "fix" housing is by making it near impossible for anyone to buy a house. Still, it appears to be what the people want.
The one thing I don't want government to do is hobble house building. We are already years behind where we should be, there isn't any room at all for allowing development to slow.
I find it amusing that the way government are trying to "fix" housing is by making it near impossible for anyone to buy a house at current prices.
I've added in the bit you forgot to add in bold. Here's a crazy idea, perhaps if prices were to decline more people could afford houses?
So the minister is blaming banks for their lending practice pre-CCCFA rather than look at what is not working now.
Labour must be concerned with so many economic headwinds this year which will surely be reflected in the polls increasingly.
Without house sales ticking over the wider economy will retrench as well.
I would say some of the Banks have been following the rules. We got a preapproval mid last year - it was renewed last week. We submitted the same paperwork as previously . Bit worried as we pay groceries still with cash and hubby uses credit card for lotto ($60 a moNth) no questions were asked and we were renewed for the same loan amount. However we have a consistent savings record- a third of our income every month, good deposit, pay our rent in full same time everybody week. Yes we eat out, buy clothes but there is money left over each month.
last week ASB released a star that over half their customers have less than $3000 in savings - you would have to argue a lot of people are living and borrowing beyond their means
Yes, I don’t think the issue was ever about eating takeaways and buying lotto tickets. That was a narrative the NZ media was complicit in creating at the behest of the mortgage brokers.
As per the legislation they are analysing peoples income and expenses. It shouldn’t be an issue for people who have saved a large deposit because in doing that you will already be operating at peak financial disciple.
So lets say you paid rent of $800 per week, and instead wanted to buy a house with repayments of $800 per week, do you think they will just approve it without looking at any other expenses as you can obviously afford $800 per week? I have a feeling they will still poke their noses into the rest of your life just to make themselves look responsible...
If you are not borrowing to the absolute limit, any CCCFA changes won’t impact you. It’s only the people who try to borrow far more than is prudent. It’s the people who see a house they like, and then try to borrow that much (rather than understanding what they afford, and finding properties in that range). So they talk to mortgage broker who will say “ ok to borrow this much, we need to list your expenses at X amount or the bank will never approve you
What first home buyer is not pushing the limit? I know we did, we knew the first few years would be tough and we would have to make a lot of sacrifices and potentially take a bit of a risk. I doubt we would get that mortgage today as my wife was studying at the time so we only had one income. The government would have "saved us" into a life of renting.
I get the feeling there are 10x more people this policy will seriously hurt than those it will save.
You don't get it do you Miguel? When is it up to the Government to decide what is prudent? If borrowers make stuff up on their loan application to get more, then their application is fraudulent. Therefore they should go down by having the bank foreclose, and borrower should lose money. Simple. Whilst directors and senior management are personally liable, they will literally stop lending to anyone who doesn't meet whatever over the top criteria Directors and senior mgt put in place (which protects them and punishes borrowers).
Why is anyone surprised Banks have not been verifying borrowers expenses? The Royal Commission in Australia found that the big four there were doing just that, but the RBNZ declined to perform a similar review of Australian subsidiaries here.
It’s very telling the reactions from all the commenters here with vested interests in property are so outraged at the idea a bank should verify a borrowers expenses, rather than just take their word for how much they spend. Why is this such an outrageous proposition? I’m sure everyone can remember how “low-doc” loans panned out in the US
These are the same people who cry “banks stress test at 6%!!” to justify why prices can’t fall, but it’s becoming clear those tests are meaningless if you don’t know what a persons expenses are
It's not the job of the Bank to verify expenses, they have an expectation that the customer will be honest. The banks however, do do credit checks, and run the information provided by that, and the customer through calculators to see if they can afford a loan. The banks don't need to worry if things go pear shaped, as they just call the mortgage, sell the house and get all, or most of their money back. As it should be. If people tell porkies and get punished for it, that's called justice.
People who are given a loan by providing fraudulent information, are being protected. Yep, that's a good idea.
Actually under the new law- that is exactly what the banks are required to do.
The government is actually trying to avoid a situation where those who borrow end up in financial distress and have to sell the property. what the government is effectively saying is New Zealanders cant be trusted to manage their finances and tell the truth so there needs to be more rules to stop people doing silly things.
In a country where 50% of the population has less than $3K in savings (meaning most people are living beyond their means) - these rules are probably long overdue
In vino - imo prudent borrowers verifying the income and expenses of borrowers. As Minsky has shown, prudence tends to wane along with memories of crashes. In the early 2000s, I was surprised when my bank told me they determine borrowing capacity by taking net income then deducting current loans and a (fairly low) fixed amount to cover all other living expenses. That same bank now examines actual expenses, looking three months of bank statements. This was pre the new Act btw. After the new Act, they are also taking a much more conservative view on repayment terms and whether each borrower can service the whole loan alone (where there is more than one person borrowing).
Kiwiana, I worked in financing for 20 or so years, and never saw a business, 1st or 2nd tier that does not have a comprehensive calculator to calculate capacity to repay. So they were already doing the sums. A borrower who makes stuff up in their application is making a fraudulent application. It's deceit and stupid. If it comes back and bites them in the arse, who's fault is that? Surely not the lender. Usually, the lender is covered by (1) deposit and (2) rising prices. So if it goes pear shaped, the lender forecloses. The new rules have made it more difficult for first home buyers to get a loan, there is no doubt. Also, banks take exponentially longer to approve as they have exponentially more work and more layers of approval to go through.
What this Government is trying to do is legislate to protect stupid people from themselves, and we all know that it is impossible to legislate for dumbness. Stupid people ALWAYS find a way to be stupid. The questions are, is it the Governments role to protect stupid people from their own stupidity and what stupidity will Labour try and legislate away next?
"It's not the job of the Bank to verify expenses, they have an expectation that the customer will be honest"
This is a crazy statement. It is core bank business to do due diligence on any money they lend out. Do you think they would lend to a company without looking at the books? I had to submit bank statements to be approved for a mortgage in the UK a decade ago - of course they want to actually see what I do with my money rather than what I claim.
Isn't this the real problem...
National average asking price for NZ homes now over $1 million
Why is no one outraged over this mess and calling for an urgent review?
https://i.stuff.co.nz/business/property/127647008/national-average-aski…
I think it would be better to review the rental market function (or disfunction) - and if found dysfunctional, then regulate rent prices.
There was an item on TV this morning that said house prices had doubled over the last ten years - I thought sounds like an underestimate but when what really matters is the changes in rent pricing vs income over the last 10 years.
A fully functioning residential housing market must have a continuous, healthy stock of new market entrants (i.e., FHBs). The majority of those new entrants are currently in the rental market. If rent prices are unaffordable, then the new entrant stocks never enter at the level/number required to keep the housing market functioning and healthy.
Adverse impact of CCCFA on borrowing was over blown by media through lobbyist working for rich and powerfull as is evident
https://thekaka.substack.com/p/dawn-chorus-inside-the-not-so-crunchy?to…
Now lobbyist will go slow as has achieved what they were seeking for minister to review and dilute.
Are the minister, so naive and vulnerable that little pressure and they crumble Or is it that at the back of their mind, they too in reality do not want to stop the ever growing house prices.
Average one million house price in NZ, is it affordable and is it fundamentally in line with wages / NZ economy.
Pandemic has proved to central bank that one can tinker with fundamentals to delay but in the end they catch up and same lesson is for extremely intelligent politicians that you can delay the inevitable for biased vested interest but in the end, be prepared to be screwed.
Can delay (till now) but cannot avoid.
December settlement volumes won’t show anything and commentators quoting them don’t understand lending.
The new legislation applied from 1 December so based on the sales cycle the impact of new credit policy won’t show up until February and March. You’ll see the full impact when RBNZ release the data in May.
My understanding was that RBNZ figures were based on commitments, not draw-down. So wouldn’t the figures would be based on when the loan agreement was signed, so figures should include the CCCFA impacts?
I could be wrong about that, I’m not terribly familiar with that dataset
CCCFA is only going to push people from 1st Tier lending to 2nd or 3rd Tier and onto loan sharks...and that was the initial purpose set out from the beginning of what the CCCFA was set out to do, protect people from loan sharks and taking on too much debt. If people need money they will find a way to get it, even if it means their usual 1st tier lender declines them they will keep trying until someone will give them the money at a higher cost.
yes but while everyone is so focused about CCCFA and home loans, no one is really thinking about personal lending in general i.e credit cards, family holidays, retail finance, motor vehicle finance etc etc. If this drys up then its another hand brake on the economy. Being smaller loans and still being declined will drive people to the other lenders...you think a loan shark is going to abide by the CCCFA?? yeah right
Non bank lenders are under the same CCCFA rules & they have been complaining https://www.scoop.co.nz/stories/PO2201/S00024/open-letter-to-government-from-non-bank-lenders-the-path-forward-on-cccfa-changes.htm
Why would people go to them - LVR restrictions don't apply...
The very best thing that could happen for those wishing to buy their first home or indeed to upgrade to their next is less credit available to the market and the lower property prices that result from that.
Almost all of the shrieking about the CCCFA is emanating from the gormless leeches that feed off ever more unaffordable housing. You'd think they'd just had salt poured on them with all the writhing and squealing going on.
The Minister is on the ball with CCCFA. Its all about prudent lending, and that requires due diligence in verification of affordability. Not just knowingly swallow hook, line & sinker income figures which can be creatively padded. Obviously ticket clippers have a beef with that. Their outpouring of grief seemingly for FHBs is heart-wrenching!!! Unfortunately, it has less traction than listening to the Devil preaching penitence
Why do I need the government to tell me what I can and can't afford or what I can or cannot do? Why is it their business? It is up to the bank and the customer to look at the contract and obligations. How many people have managed to get ahead with a personal loan/mortgage without defaulting over the decades that the system has run on, compared to the small number who who find themselves defaulting or unable to make repayments over the same period?
yes there is regulation and has been for years, they didnt need to tinker with this again to protect the few who think loan sharks are a good idea. When interest rates and inflation rise that generally has the effect of slowing down the market and lending in general. If people still think that money from the bank is theirs and there is no consequence thats on them, we all are in the same position and know the risks.
OK good, now we've moved on to discussing what is the correct level of regulation rather than whether any is needed. Sensible people can disagree on this.
My own opinion is that the crazy house price growth over the last couple of decades shows that credit has been too free and support more controls, but I admit this is confounded by interest rates, and simply returning to the tradition of having interest rates somewhat higher than inflation might do the job too.
Perhaps we should start a political party that promises to gift $500,000 to every person in the country who doesn’t own a home to compensate them for the financial damage done via fiscal/monetary policies post GFC?
Surely that will be enough to get 10% or more of the vote and get into government.
The CCCFA revision made the directors personally liable for irresponsible lending. That is what the difference is now.
They may be similar rules to what went before but with zero accountability why bother when it (significantly) negatively affects your bottom line in terms of both compliance costs and overall turnover.
Same industry changes occured in construction when the health and safety at work act was brought in. Personal liability for those paid million dollar salaries is a wonderful thing, incredibly effective at creating positive change, and clearly overdue in the finance industry.
Yes. And I think this is why there has been overreach. The pendulum swung too far the other way now because the banks have become unhealthily risk adverse. I think there's a healthy middle ground between the no regulation crowd and the CCCFA is the best thing since sliced bread crowd.
How do you have a middle ground between the people managing these banks having personal liability and none? It is either one or the other.
And how is it not appropriate for them to have to take responsibility for their business practices? They are paid millions of dollars a year. They are the only ones with the power to change these things. As Minister Clark alluded to, the rules haven't changed to any great quantum, it is just now they are enforceable. Of course a CEO who is tasked with maximising profits and has paid for a comprehensive risk assessment of not complying with existing legislation is going to maximise profits where they see little to no risk.
This is a long overdue change. I think it is fabulous and wouldn't change a thing about it. Let them earn their fricking salary and become part of the solution to the NZ housing problem rather than possibly the major contributor so far to the mess we find ourselves in.
That's the issue Minister Clark highlights. The rules have barely changed, they are just enforceable now. So were they always unmanageable and out of proportion? No-ones complained until now?
And how is not checking ability to pay properly even doing your job. The only person being irresponsible in that situation is the bank. Of course that needs to change.
It certainly seems to be those with skin in the game that are squealing. Heard a guy on Talkback today saying that current home ownership stats in NZ are actually very good as is the current median house price. His advice to listeners was so "suck it up" and that they really only have one option and that is to "get on the property ladder"! I was wondering which real estate agency he works for?
Anything to put a stop to this self serving, greedy insanity has got to be good for the silent majority.
Yeah there appears to be a high correlation between property investors and narcissistic personality disorder or even being a legitimate psychopath I.e they couldn’t give a toss about anyone except for themselves but try paint themselves as the good guys…classic wolf in sheep’s clothing. They happily use those around them for their own personal gain without care for the damage done = definition of psychopath
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