Banks less willing to lend following CCCFA changes - mortgage adviser survey

In a January mortgage broker survey by Tony Alexander and, 83 percent of respondents say banks are less willing to lend.
In a January mortgage broker survey by Tony Alexander and, 83 percent of respondents say banks are less willing to lend. Photo credit: Getty Images.

Banks are less willing to lend following changes to the Credit Contracts and Consumer Finance Act, a mortgage adviser survey shows.  

And despite the environment of rising interest rates, mortgage advisers report seeing fewer homeowners asking for advice about refinancing, (e.g. top-ups and fixed mortgage rate rollovers).

Changes under the Credit Contracts and Consumer Finance Act (CCCFA) from December 1, aim to protect consumers from unaffordable debt, requiring lenders to ensure loans are suitable and affordable. The level of evidence required around affordability has increased, and has been labeled as "overly prescriptive", and meant bank statements were put under the microscope.

In a January survey of 69 nationwide mortgage advisers by Tony Alexander and, over three-quarters of the respondents (83 percent), say banks are less willing to lend. 

Asked whether more homeowners are enquiring about refinancing, a net 29 percent reported seeing less, up from a net 13 percent seeing less in December.

Over half of the survey respondents report seeing fewer first-home buyers and investors coming forward for a mortgage, at a net 52 percent and 57 percent respectively.

Independent economist Tony Alexander told Newshub while loan-to value ratio restrictions, debt-to-income ratios (applied by certain banks), and interest rate rises, are affecting borrowers, the CCCFA changes are having the biggest impact.

"Largely, it's the CCCFA changes that are preventing home buying by a great number of people," Alexander said.

In the survey results, one adviser said the CCCFA changes were having a bigger impact than the LVR restrictions and the removal of interest deductibility for investors.

"Banks are now taking a forensic look at client's expenses: trust has been eroded between the bank and client around how they should live their lives," the comment reads.

In line with changes to loan-to-value (LVR) ratio restrictions from November 1, which halved the portion of loans to owner-occupiers higher than 80 percent LVR (less than 20 percent deposit) to 10 percent of a bank's total lending, some mortgage advisers said fewer low-deposit loans were being approved.

Concerns were also cited around the portion of rental income taken into account by banks for mortgage servicing (formerly 75 percent, now 60-65 percent).

Following the Official Cash Rate rise to .75 percent in November, and amid forecasts of further rises, mortgage borrowers showed a preference for fixing a rate for two or three years, survey results showed. 

Asked about how the CCCFA changes were affecting mortgage applicants, Rupert Gough, CEO of The Mortgage Lab based in Tauranga, told Newshub a bank's view of what a couple may spend in a month is generally "quite little".

As they're often small, regular amounts, spending on things like Uber Eats, takeaway foods, coffees and subscriptions can easily go over what is viewed as the minimum.

"It's about watching the little things…[applicants] don't have to swear off takeaway food, but how many times per week are you doing it," Gough said.

Buying a couple of coffees per week might be OK, but if it's a daily ritual, the monthly cost soon adds up.  Paying for gym memberships can be viewed as an investment in health, but as prices vary widely, mortgage applicants might want to consider if there's a cheaper option.

"The question is can you do what you're doing at the gym for less money, even temporarily, until you've got that house" Gough added.

Banks are generally considered to be responsible lenders, but they're being extra conservative in response to the changes, which don't define who they're aimed at, Gough said. 

Earlier in January, David Clark, Minister of Commerce and Consumer Affairs told Newshub he has asked the Council of Financial Regulators (The Reserve Bank, Treasury, Financial Markets Authority, MBIE and the Commerce Commission), to bring their investigation forward on whether the CCCFA is being implemented as intended.

"Banks appear to be managing their lending more conservatively at present, and this is likely due to global economic conditions. It may also be that in the initial weeks of implementing the new CCCFA requirements, there has been a decision to unduly err on the side of caution," Clark said.

Along with CCCFA changes, Clark acknowledges that changes to loan-to-value ratio (LVR) restrictions, Official Cash Rate rises, and increases in house prices and local government rates, occurred around the same time.

"An investigation by COFR will determine the extent to which lender behavior, in respect of the CCCFA, is a significant factor in changes to banks’ lending practices," Clark added.