Financial advisers are "extremely concerned" by the "unintended consequences" of changes to a consumer finance law affecting people's ability to get a bank loan.
There have been claims in recent days that banks have declined to approve loans due to prospective borrowers spending money on takeaways, drinks from a dairy and Christmas shopping.
Katrina Shanks, the Financial Advice New Zealand chief executive, says these are the "unintended consequences" of changes made to the Credit Contracts and Consumer Finance Act which came into effect in December.
Intended to protect vulnerable borrowers from loan sharks lending money without considering the recepient's ability to repay, the changes mean banks need to take a forensic lens to any prospective borrower's spending habits to check affordability before they can approve any loan.
But Shanks reports financial advisers are "extremely concerned" those changes are putting some home seekers at a "significant disadvantage". She cited a report out on Friday by Centrix that she says shows the proportion of home loan applications that resulted in loans has dropped from 36 percent to 30 percent.
"This comes as no surprise to Financial Advice NZ, which has been reporting mortgage adviser are seeing a significant reduction in pre-approvals not being renewed and lending levels to all borrowers being cut due to the new requirements of the Credit Contracts and Consumer Finance Act (CCCFA)," she said.
A Government spokesperson told Newshub officials are "aware of the concerns".
"Officials from MBIE will be engaging further with lenders and consumer advocates once the new law has had a chance to bed in.
"MBIE officials are continuing to assess the impact of the new requirements and will further update the Minister of Commerce and Consumer Affairs once Parliament resumes."
Shanks says she wrote to Commerce Minister David Clark on December 16 raising the issues and requesting a meeting, but is still awaiting a response. She wrote that the industry supports measures to protect consumers and understood the changes were intended to do that.
However, she said the implementation of the changes has led to some being "significantly disadvantaged and locked out of finance options".
"At the end of last year, we surveyed our mortgage advisers and within two days had 300 examples of reduced lending due to the changes in the CCCFA, the change in Loan-to-Value Ratios, the increase in interest rates, and the debt-to-income ratios that can be applied by certain lenders."
Changes were made to LVRs by the Reserve Bank last year as house prices skyrocketed. The central bank also raised the Official Cash Rate as inflation increased, prompting a rise in interest rates.
Shanks describes it as a "perfect storm for home seekers' ability to obtain credit".
"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."
The Otago Daily Times reports on Friday that Dunedin woman Kim Anderson-Robb had a loan application declined by her bank because of a $187 Christmas shopping trip to Kmart in Invercargill, $100 spent at the Warehouse and a credit card she hasn't used in more than a year. Her husband's daily trip to the dairy for a drink to have at work was also raised.
The couple have had a mortgage for 17 years and never missed a payment or asked for a holiday, she said. Their mortgage is $63,000 and wanted it increased to $80,000 to help with urgent repairs to their house.
"We are on good money but they declined our application because of a one-off trip to buy Christmas presents and a bloody drink. It's stupid," she told ODT.
Ahead of the changes coming into effect, ANZ warned the rules around checking affordability "are very strict" and that customers "may find it more difficult to get credit than they have in the past".
In a press release on December 1, Clark said it was "vitally important" to protect people from "falling into the trap of taking on unaffordable debt".
"We’ve made sure the rules are clear for lenders and consistently applied across the board. The detailed requirements are complemented by the Responsible Lending Code, which provides guidance on their obligations.
"The industry has been working hard to implement these changes over the past year and I’m pleased to see this drive for better consumer outcomes."
