The Credit Contracts and Consumer Finance Act 2003 (CCCFA), which governs banks, finance companies and lenders in New Zealand, has been significantly updated. There are now new requirements which come into effect on the 1st of December this year. All lenders are making the changes now so they can be ready for 1 December. Lenders have an obligation to lend responsibly, this has always been the case, however the changes to the CCCFA brings in additional tests the lender has to comply with, to assess the suitability of the loan and the borrower’s ability to afford repayments.
As part of these new tests lenders now have to collect evidence of "lending suitability" for example;
On top of ensuring the lending desired is suitable for your requirements, lenders have to collect evidence of "proven affordability" for example;
- If you want to apply for a loan to purchase a home, the lenders will require more details about your current budget vs future home budget in order to determine whether there is a change in budget. Where there is an increase in regular outgoings, the lender may not consider the lending until they have sufficient evidence of your ability to afford the increased repayments.
- If you want to increase your loan amount, there will likely be an increase in your repayment requirements. If you cannot “prove” that there is sufficient excess in your budget to make these increased repayment amounts, the lender may not consider increasing the lending until they have sufficient evidence of your ability to afford the increased repayments.
- In order to show "proven affordability" lenders are now expected to assess the information you provide about your income and expenses over a three-month period, as well as your bank statements and actual expenditure, then compare this with your expected budget going forward (also taking into account contingencies, expected market changes & lender policies) in order to determine whether there are excess funds in the future budget to cover increased repayments for the desired lending requested.
You can read more about the act here.
The Government expects this will have a significant impact for all lenders. It will affect the ability of consumers to borrow, as well the turnaround times for lenders to consider lending applications. With these new changes being made across all banks and lenders, we are seeing significant reductions in the number of loan approvals and longer wait times for our clients.
The team at The Mortgage Girls anticipate that turnaround times will return to normal once everyone understands the new changes and processes, and plans can be put in place to give clients the best opportunity to prove they can meet the lenders’ new budget requirements.
In the meantime, we recommend reducing your spending and increasing saving, where possible, to start to show a history of your new expected budget and affordability. The Team at The Mortgage Girls can provide you with an indication of the repayment amounts for your desired loan amount so you can start building up the evidence and working towards “proving affordability” of your future budget.
Give us a call today 0800-864-864 or get in touch here.
