Changes to responsible lending come into force, but banks doubt they will give a boost to mortgage lending

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Trade and Consumers Secretary David Clark has been heavily criticized by banks and mortgage advisers for making responsible changes to the Credit Act.

ROBERT KITCHIN/stuff

Trade and Consumers Secretary David Clark has been heavily criticized by banks and mortgage advisers for making responsible changes to the Credit Act.

Changes to the Responsible Lending Code and lending regulations have come into effect, but banks and brokers say more needs to be done to make home loans easier for borrowers to access.

Last December, responsible lending regulations were tightened to reduce the damage done by predatory lenders.

But a backlash from banks and brokers, who said the changes went too far and had unintended consequences, prompted Trade and Consumers Secretary David Clark to order a review of the changes.

As a result, some of the most contentious aspects of the tougher responsible lending laws will be relaxed, including the efforts banks must make to screen prospective home borrowers’ spending.

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People reported being denied loans after the rules were introduced, for things like spending too much on a dog, and mortgage advisors and opposition politicians claimed the rules prompted banks and other lenders to become “ultra-conservative” and refuse loans that they had previously done.

Bank chiefs claimed stricter responsible lending laws had caused mortgage lending to fall by about 6% to 10%.

While banks and the real estate distribution industry welcomed the changes, they didn’t think they went far enough.

Jen Baird, executive director of the Real Estate Institute, said: “The recent changes address some of the issues raised by the changes that went into effect in December 2021, such as: B. Excessive inquiries from lenders about the cost of living of potential buyers.

“While the changes provide some relief for borrowers and lenders and bring needed clarity, they are modest in scope.”

The responsible changes in lending would have a significant impact on the housing market, she said.

“Across the country, REINZ members reported on the negative impact of the reforms on able borrowers. Members saw a significant drop in first home buyers and heightened caution in the market due to uncertainty about the ability to arrange appropriate financing in a timely manner, particularly to be able to buy unconditionally,” she said.

According to Roger Beaumont, banks decide who will bank with them “on a case-by-case basis”.

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According to Roger Beaumont, banks decide who will bank with them “on a case-by-case basis”.

She hoped further changes would follow a review of the responsible lending regime by the Board of Financial Regulators, due to be released later this month.

Consumer groups that help people struggling with unpayable debt have warned of changes that could make it easier for unscrupulous lenders to prey on desperate people.

Campbell Hastie, mortgage adviser, says dealing with banks has become easier as their staff have become more accustomed to stricter responsible lending laws.

BEVAN READ/Stuff

Campbell Hastie, mortgage adviser, says dealing with banks has become easier as their staff have become more accustomed to stricter responsible lending laws.

Roger Beaumont, Chief Executive of the New Zealand Bankers’ Association, said: “We look forward to the outcome of the ongoing review by the Council of Financial Regulators.

“We believe that by working with governments and organizations like FinCap, we can find a way to both protect vulnerable consumers from unscrupulous lenders and ensure a less restricted flow of credit for those who can afford it.”

Mortgage advisor Campbell Hastie said banks and brokers have become more accustomed to working with the stricter responsible lending rules, which has made the borrowing process smoother.

After December, banks were initially very strict in appraising spending on loan applications and did not feel they could accept budgets from them that committed to changing their spending habits after receiving a home loan.

The banks are now ready to accept these budgets and commitments, he said.

“The bank will say, ‘You’ve had a responsible, sustained conversation with the client and we’re going to take that on,'” he said.

“It makes more of a difference than these rule changes,” he said.

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