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ROBERT KITCHIN/Stuff
Commerce and Consumer Affairs Minister David Clark came under intense criticism from banks and mortgage advisers for the responsible lending law changes.
Changes to the Responsible Lending Code and lending regulations have taken effect, but banks and brokers say more needs to be done to make it easier for borrowers to get home loans.
In December last year, responsible lending regulations were strengthened in a bid to reduce the harm being done by predatory lenders.
But a backlash from banks and brokers, who said the changes had gone too far and created unintended consequences, led Commerce and Consumer Affairs Minister David Clark to order a review of the changes.
As a result, some of the most controversial aspects of the tougher responsible lending laws will be eased, including the lengths banks have to go to in scrutinising potential home loan borrowers’ expenses.
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People reported being turned down for loans based on things like spending too much on a dog after the regulations were introduced, and mortgage advisers and opposition politicians claimed the regulations prompted banks and other lenders to become “ultra conservative”, declining loans they would previously have made.
Bank chief executives claimed the tougher responsible lending laws resulted in about a 6% to 10% drop in mortgage lending.
While welcoming the changes, banks and the property sales industry did not believe they went far enough.
Jen Baird, chief executive at the Real Estate Institute, said: “The latest amendments address some of the issues raised by the changes which came into effect in December 2021, such as excessive inquiries by lenders into potential buyers’ living expenses.
“While the changes will be a relief to borrowers and lenders, bringing necessary clarity, they are modest in their scale.”
The responsible lending changes had a significant impact on the property market, she said.
“Across the country, REINZ members reported the reforms’ negative impact on capable borrowers. Members saw a marked decrease in first-home buyers and increased caution in the market due to uncertainty around the ability to arrange suitable finance in time to be able to buy, particularly unconditionally,” she said.
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Roger Beaumont says banks are making decisions about who banks with them on a “case-by-case” basis.
She hoped more changes would follow a review of the responsible lending regime by the Council of Financial Regulators, which was due to be published later this month.
Consumer groups that help people struggling under unaffordable debt have cautioned against changes that could make it easier for unscrupulous lenders to exploit desperate people.
BEVAN READ/Stuff
Campbell Hastie, mortgage adviser, says banks have become easier to deal with as their staff got used to the tougher responsible lending laws.
Roger Beaumont, chief executive of the New Zealand Bankers’ Association, said: “We look forward to the outcome of the ongoing Council of Financial Regulators review.
“We believe that by working with government and organisations like FinCap, we can find a way to both protect vulnerable consumers from unscrupulous lenders and ensure a less restricted flow of credit to those who can afford it.”
Mortgage adviser Campbell Hastie said banks and brokers had become more used to working with the tougher responsible lending rules, which had made the borrowing process smoother.
After December banks were initially very tough in scrutinising the expenses of people applying for loans, and did not feel they could accept budgets from them in which they pledged to change their spending patterns after they got a home loan.
Banks were now willing to accept those budgets and pledges, he said.
“The bank will go, ‘You have had a responsible, sustainable conversation with the customer, and we will take that’,” he said.
“That makes more difference than these rule changes will,” he said.
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