Shifting the goal posts

The personal impact of changing lending laws

By Megan Dunn

Ever had a problem that only gets worse after you try to resolve it?

Simply stated, that is exactly what’s occurred since the changes made to the Credit Contracts and Consumer Finance Act came into effect in December 2021. Following this amendment, the proportion of home loan applications that result in loans has fallen from 36 percent to 30 percent 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. The sharp decline in successful loan applications follows banks now taking a microscopic look at any potential borrowers spending habits and personal finances before any loan can be approved. On surface level, this doesn’t seem like a bad thing and was merely intended as hyper vigilance of protecting borrowers from ever popular loan sharks. These unethical lenders approve unrealistic loans, being fully aware of the borrower’s incapacity to repay this loan, eventuating in a large financial black hole for those that get the wool pulled over their eyes. Although all seemed well on paper, the reality of what has since ensued is a bizarre web of stories, Kiwis having their loan requests denied for the most preposterous of reasons. Katrina Shanks, the Financial Advice New Zealand chief executive, told Newshub, “Lenders now have additional obligations when determining affordability and the suitability of a loan. “This has resulted in them having to review clients’ income and expenditure in much greater detail, and they are now determining expenditure previously considered discretionary as non-discretionary in order to meet the new requirements of CCCFA. “Some of the stories almost defy logic, like being refused a loan or having the amount cut drastically because you’re spending too much on coffees and takeaways.” Impending home owners are now finding themselves locked out of the market for committing petty crimes such as purchasing a daily coffee or a Friday night takeaway. New Zealand’s booming house market and often times eye watering house prices has certainly been a contentious issue in the past year, hence why a further stumbling block is significantly disadvantaging those who already feel somewhat behind the eight ball. “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,” Katrina says. A Dunedin woman who needed a loan extension for an emergency roof repair had her mortgage application declined after the finely tuned combing of her personal finances concluded that she spent too much of her money at restaurants. Her and her husband have a combined annual income of $200,000 and have been with the same bank for almost 20 years and had been approved for two successful mortgages over this timeframe. She told the Otago Daily Times, “It is bloody ridiculous. Do they expect us to live like monks?” Only altering spending activity for the purpose of getting approved by banks is becoming somewhat of a trend around the country. The couple devised a plan to carefully review their spending habits over a course of three months so they could go back into the bank and re-attempt. “After those three months, we’ll be straight back to the restaurants, so what is the point?” the woman concluded. Popular video focussed social network entity, Tik Tok, has seen the documentation of everyday Kiwis trying to get around these restrictions by wiping their bank accounts ‘clean’. It shows them buying takeaways or items for themselves with cash only, trying to conceal their ‘unnecessary purchases’. This stands as commentary on New Zealand’s flawed housing system and the large barriers that ordinary Kiwis are having to jump through on entry into the market. Being forced to hide completely acceptable purchases in order to be considered to own a home seems totally unreasonable in the minds of many. Here poses the question, does spending money on Netflix, Christmas presents, restaurants’ or the gym deem you as someone risky to pre approve a loan to, are you a bad saver? or simply a human spending your money on things you need or things you like? Following these undetermined effects of the changes and the large amounts of criticism that followed, the Government issued a statement stating it will look into the ‘unintended impacts’ of the CCCFA, making no promises of changes but perhaps more clarity. The minister of Commerce and Consumer Affairs, David Clark, said the sharp decline in lending approvals may be due to “global economic factors at play, and wider economic factors” and warned against “jumping to conclusions” CT

Some of the stories almost defy logic, like being refused a loan or having the amount cut drastically because you're spending too much on coffees and takeaways. ”