Low-deposit lending restrictions and other lending law changes are locking prospective homeowners out of finance they would have qualified for weeks ago, financial advisers say.
The proportion of home loan applications that result in loans has fallen from 36 per cent to 30 per cent since the start of December, according to data from credit reporting agency Centrix.
Centrix estimated the lending slowdown amounted to almost $2 billion, with home loans dropping from an average of 30,000 per month to 23,000.
That’s a huge drop.
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 would-be borrowers at a big financial disadvantage.
She said a survey of mortgage advisers identified a significant reduction in pre-approvals not being renewed and cuts to lending levels because of the new requirements of the Credit Contracts and Consumer Finance Act (CCCFA).
“Within two days we had 300 stories of clients who had not been able to obtain a mortgage or it had been more difficult, or had been reduced, or declined altogether,” she said.
The Government was explicitly warned this might happen, but ignored it.
The new law provides for hefty fines for lenders who make a loan to someone who can’t afford the repayments. And it states that senior directors and managers will be personally liable, and can’t even get insurance for any liability,
So of course senior management will massively tighten up criteria for loans.
“The issue with the CCCFA is that it’s a very wide net that’s captured all New Zealanders, not just those who are vulnerable. It’s made the affordability test so hard now that the average New Zealander who was not vulnerable cannot obtain the credit they could previously.”
In some cases, Shanks said banks were refusing loan applications or drastically cutting the amount they would lend because people were spending too much on takeaway food and coffees.
Huge own goal by the Government.