Mortgage broker starts petition calling for review of the CCCFA, says changes make it tougher for all borrowers

Squirrel CEO John Bolton says the CCCFA is now overly prescriptive, despite changes aimed at helping to prevent borrowers taking on too much debt.
Squirrel CEO John Bolton says the CCCFA is now overly prescriptive, despite changes aimed at helping to prevent borrowers taking on too much debt. Photo credit: Getty Images.

A mortgage broker has launched a petition to encourage a review of the Credit Contracts and Consumer Finance Act (CCCFA), saying the new requirements are overly prescriptive and make it tougher for all borrowers.

It comes as CCCFA changes formally introduced from December 1 put extra onus on lenders to ensure loans are affordable, to protect consumers from taking on too much debt. 

Incorporating feedback from 60 mortgage advisers, an October survey by independent economist Tony Alexander, showed that due to the incoming changes, bank assessments of borrowing capacity were getting tougher.

Mortgage advisers told Newshub the level of evidence required to prove affordability had increased, Campbell Hastie of Hastie Mortgages saying bank statements were put "under the microscope"

David Clark, Minister of Commerce and Consumer Affairs, said concerns around lending practices, particularly for vulnerable borrowers, led to the Government's review.

"These new rules can help prevent consumers taking on debt they cannot afford to pay back," Clark told Newshub.

But John Bolton, founder and CEO of mortgage brokerage Squirrel, said the changes had gone too far, as they made it a lot harder for everyday Kiwis to get loans.

In Bolton's view, the CCCFA changes aren't just affecting first-home buyers trying to get into the property market - they potentially affect everyone who has a mortgage and wants to borrow money.

"If they want to go interest-only, extend their loan, reduce their repayments, top-up their mortgage (e.g. to do some deferred maintenance), buy or sell a property…it impacts everything,'' Bolton said.

Protecting vulnerable borrowers and putting rules around consumer finance debt, such as car loans and credit cards, is worthwhile. But, he said, the CCCFA changes are overly prescriptive, citing examples where the rules make it harder for existing homeowners. 

Examples include older borrowers wanting to get equity out, business owners relying on using equity in their home for capital and separating couples where one wants to retain ownership paying interest-only.

"The reality is that Kiwis store the vast majority of their wealth in their house…when you mess around with the house, you mess around with everything."

Squirrel founder and CEO John Bolton.
Squirrel founder and CEO John Bolton. Photo credit: File.

Bolton hopes the petition which has racked up over 5000 signatures, will highlight some of the issues borrowers (including homeowners and business owners) are facing, and encourage the Government to review the CCCFA.

Responding to Newshub, David Clark said under new regulations, lenders are required to follow a robust process to determine borrowers’ income and expenses.

This will help to ensure lending is affordable and suitable.

"Through these checks, lenders may decide that a borrower is unable to afford a loan…responsible lenders are already doing this, and their borrowers will see less change as a result."

The CCCFA changes, which were developed after an engagement and consultation process, aim to "strike a balance" between the interests of borrowers and lenders.

"I am confident the requirements in the regulations will improve the quality and robustness of assessments carried out across the board," Clark added.

Once the changes are fully embedded, Government officials would be talking to lenders and consumer advocates, to see what the impact had been, and if any adjustments are needed.

Banking Ombudsman Nicola Sladden, told Newshub CCCFA rules require all lenders to make "comprehensive enquiries" to ensure loans are suitable and affordable, before they can be approved.

"We welcome the clarity the changes provide, and the extra protection from unaffordable debt, particularly for consumers in vulnerable circumstances," Sladden said.

People considering taking on a new mortgage are advised to get in early and find out what they need to do to prepare.

An overview of lending changes under the CCCFA can be found here.