New loan restrictions block homeowners from the market

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Restrictions on low deposit loans and other changes to the loan law are preventing potential homeowners from financing they would have qualified for weeks ago, according to financial advisers.

Photo: RNZ / Nate McKinnon

The proportion of mortgage applications that result in loans has increased from 36% to 30% since the start of December, according to data from the credit bureau Centrix.

Centrix estimated the slowdown in lending to be nearly $ 2 billion, with home loans falling from an average of 30,000 per month to 23,000.

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 potential borrowers at a financial disadvantage.

She said a survey of mortgage advisors identified a significant reduction in non-renewed pre-approvals and reductions in loan levels due to new requirements in the Credit Deeds and Consumer Credit Act (CCCFA). .

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“In two days, we had 300 stories of clients who had not been able to get a mortgage or it had been more difficult, or had been reduced, or outright refused,” she said.

“The problem with CCCFA is that it is a very large network that has captured all New Zealanders, not just the vulnerable. This has made the affordability test so difficult now that the New Zealanders The average Zealander who was not vulnerable cannot get the credit he previously could. “

In some cases, Shanks said banks are turning down loan applications or drastically reducing the amount they lend because people are overspending on take out and coffee shops.

Centrix chief executive Keith McLaughlin said there had been a dramatic drop in the number of loans since the CCCFA took effect on December 1.

“The first signs are that the market is struggling to cope with the new CCCFA legislation,” he said.

“This delays the processing of applications, increases costs, increases the disclosure required by the borrower, and ultimately those costs will be passed on to the borrower.”

Shanks has written to Trade and Consumer Affairs Minister David Clark asking for a review of the legislative changes.

Law leader David Seymour has called for an investigation, while Squirrel Mortgage Brokers Managing Director John Bolton has petitioned Parliament because he believes the legislation could cause many borrowers to turn away to lenders of last resort.

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Credit reporting firm Equifax separately found that demand for consumer credit fell more than 30% in the three months to December, while demand for home loans fell 35% from the same. quarter in 2020.

Equifax New Zealand chief executive Angus Luffman said the dive was mainly caused by blockages.

“The prolonged lockdowns in Auckland have had an impact on demand, leading to sharp declines in all major retail credit products,” he said.

“The percentage declines are exacerbated by the huge volume of home loan applications recorded in the December 2020 quarter. Demand peaked during this period, so it is important to factor this into the equation.”

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