CCCFA bad law but huge growth in credit is the bigger picture

Financial advisers have been told the Credit Contracts and Consumer Finance Act (CCCFA) is bad law but it is not the main issue on the table right now.

The bigger question was a gigantic splurge in mortgage lending over the last two years.

The comments came from the independent economist Cameron Bagrie, in a webinar organised by Financial Advice New Zealand.

He said in the last 12 months, total home lending had increased by $33 billion, or $2.5 billion per month. This was a lot higher than average, and way ahead of the growth in household income.

“An 11% rise in housing debt in 12 months is not normal, it is not sustainable. Income growth has been about 6%. Now that makes absolutely no economic sense to me.

“We can talk about the CCCFA and its unintended consequences etc etc etc, but somebody has got to step in and think about the bigger picture here.

“The environment we have been in for the past two years has been completely abnormal.”

Bagrie told his audience that 60% of all lending is housing based, it was 59% three years ago and 52%, 25 years ago.

“Now look, we are not going to get wealthier selling more expensive houses to each other.

“When you are starting to see housing credit growth at around 11% per year and you are seeing business lending pretty anaemic, then that is not a good sign.”

But Bagrie believes there are indications that this “unsustainable” growth in lending will not in fact be sustained.

This was partly due to actions by the Reserve Bank to raise the cost of borrowing. Also having an impact would be an increase in the supply of homes, with houses being consented at a faster rate than population growth.

“The CCCFA is just another twist of the knife.”

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