CCCFA changes not a complete panacea

He says the government’s changes could be seen as restoring the situation to how it was before, with the banks as experts in managing risk appropriately and ensuring customers get the right outcomes.

“Of course, unwinding everything that's been put in place probably isn't going to happen, ironically. Banks are still going to ask for more information than they used to from people applying for mortgages because they have invested in processes to do that, but the validation of the information will be more self-declared as opposed to intrusive spending questions and fine tooth-combing of bank statements. Banks will be a lot less anal, so process times should shorten,” Cunningham says. “The process of information gathering will continue but in a far more informal way.”

NZ Mortgages founder Nathan Miglani says it is great the government has made this move especially as it has only been in power for about six months.

“Changes were made by the previous government, which were appreciated, but the general rules and fundamentals stayed the same.”

Difference for poorer borrowers

“The new changes are definitely going to make a lot of difference to low socio-economic people because once the CCCFA changes came in they found it hard to borrow money – even as little as $500. It proved Labour’s changes were working against them and benefitting loan sharks and gangs, who were approaching these poorer people willing to give them a loan at crazily high interest rates.”

Miglani says the changes will be welcomed by everybody in the finance community. “It is going to make life so much easier for people who want to borrow money to buy their daughter a laptop or have an operation, for instance."  

They will also make life easier for mortgage advisers because the application process will become quicker, but Cunningham expects only a little easier because they have already found ways to navigate the CCCFA and bank processes more effectively using technology.

David Green founder of AdviceHQ says aspiring homeowners can now turn their property dreams into reality, while fewer individuals will be forced into the arms of high cost, short-term lenders.

“The streamlined process for mortgage applications should translate to less paperwork for lenders, ultimately leading to quicker approvals and reduced costs.”

Independent economist Cameron Bagrie says the outcome of the changes is more money channelled into housing at the expense of businesses and the real productive part of the economy.

“The CCCFA was a farce and it is good to see reality has kicked in, but the government’s action on that and inaction on the business side of things shows populism rules.”

Cunningham says while common sense has prevailed, the legacy is still there.

He doesn’t expect the number of mortgage approvals to suddenly increase.  “There was a brief period after the CCCFA changes were introduced when mortgage approvals dropped, and all mortgage advisers had to figure out how to work with the system as it was. It just added more time, process and frustration for everyone.

“The government’s changes will just get rid of a whole lot of unnecessary bureaucracy that achieves absolutely nothing other than adding cost.”

More changes needed

Miglani says any more changes are needed, particularly around bridging finance and interest only loans, where there is still a big gap in the market.

“While banks do bridging finance to a limited degree they are not really interested in it. Urgent action is needed, especially if somebody is older, hasn't sold their property and wants to buy a new home. They want to move but can’t and often end up with non-bank lenders and much higher fees.”

Interest-only loans are another concern. “If somebody has an investment property and wants an interest-only loan, it is not a given that a bank will lend on that basis. Although there are short form applications and banks are making progress in that direction, getting approval is still a long process.”

The government’s changes also include strengthening dispute mechanisms and public consultation on reducing personal liability for directors and senior managers, which Cunningham says has been a long-standing flaw since the CCCFA legislation came a decade ago.

“As banks and the like have discovered compliance issues, effectively they have had to give the customer all the interest back. Then directors’ personal liability is another aspect. That creates a difficult situation for potential directors of financial services companies.”

Moves to align the rules of the four approved financial dispute resolution schemes is a good idea, Cunningham says. A consistent level across the schemes will be helpful, while raising the maximum level they can award to $500,000 is in his opinion worthwhile and can be regarded as an inflation related adjustment as the price of houses has skyrocketed.