Changes can’t come fast enough

Mortgage advisers are keen to see if the incoming government will scrap or make changes to the CCCFA within its first 100 days.

National’s commerce spokesman Andrew Bayly said before the election a National-led government would repeal the 2020 CCCFA and subsequent amendment regulations. From there it would create a new set of regulations so high cost lenders – the CCCFA’s intended target – wouldn’t prey on vulnerable New Zealanders.

However, he says, this may not be enough because some of the tightened lending behaviour from the past three years was now ingrained into banks’ processes. Registered banks were included in the CCCFA rules and mortgage lending almost stopped in 2021 until two sets of tweaks to the legislation by the outgoing Labour government. A third review was ordered before the election.

Advice HQ founder David Green says mortgages were treated like personal loans by some of the more conservative banks when the CCCFA rules kicked in. “A lot of borrowers were frozen out.

“If National makes the changes it has talked about, it will make a big difference for mortgage advisers. The 2021 original changes to the CCCFA were aimed at solving a problem that wasn’t there. There weren’t and haven’t been wholesale mortgagee sales across the country. Defaults are low and have historically been low.”

The severe penalties in the legislation for chief executives or senior management at lending institutions if they get things wrong, doesn't help in terms of people managing risk, Green says. “Lending money is a balance and all the new CCCFA rules have done is put the balance way down the conservative end of town, when in fact, banks are relatively careful on what they do anyway, and essentially there's never been a problem to solve.

“It’s just added additional red tape for mortgages, when actually, I think the target market for the legislation was more like truck loans and unsecured personal lending, not necessarily a mortgage which is secured against a house.”

Green says if the CCCFA red tape is removed and mortgages are not treated like personal loans, that can only be good for the economy and all parties. “At the moment there’s just a lot of red tape and that is not benefitting any stakeholder, whether it is banks, advisers, customers and markets in general.”

He says it is always a balance between having credit freely available so markets, businesses and people can operate versus being conservative enough to manage the risk. “The pendulum of CCCFA changes went too far the other way for mortgages that are secured against residential property. Essentially, there was no evidence to suggest there was a requirement to tighten up lending.”

Investors show market return

Over the past two years there has been little bank mortgage lending to investors. However, the latest Tony Alexander mortgage advisers survey shows investor inquiries are at their highest levels since late 2020.

A net 24% of mortgage advisers say they are receiving more enquiries from investors. Alexander says this is the same reading as last month and shows the surge in investor enquiry last month was not a statistical blip.

“The situation is now markedly different from almost all other months since early 2021 when tax rules for investors changed.”

Advisers’ comments about bank lending to investors include: not much change in this area - everything seems to be hinging on the election; tweaks to the shading of the rental income has declined, however, the actual rates and insurance expenses, in most cases, exceed the shaded allowance when a percentage of the rent was considered; no changes, 65% LVR for existing investment properties, 80% LVR new builds, 80% overall LVR for owner occupied and investment property; inquiries are steady, however, once investors do the numbers as part of the application process and speak with their accountant, they no longer wish to proceed as they cannot make the numbers work or they are not willing to top-up the difference.

In the first home buyer market, a net 59% of the 75 survey respondents say they are receiving more enquiries from first home buyers. Alexander says this indicates the extent to which young buyers are driving the upturn in the housing market is not easing and if anything may be strengthening.

On banks’ willingness to lend, the main change in perception showed up earlier this year, Alexander says. Since that change in February things have not altered much with a net 32% of advisers saying last month that lenders are getting more willing to advance funds.

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