Government to tweak 'over-prescriptive' CCCFA lending law

Homeownership could soon become an achievable goal for more Kiwis thanks to a potential law change.  

The Credit Contract and Consumer Finance Act (CCFA) governs who can get a mortgage. 

But it's been criticised for being too restrictive and now, the Government's latest "action plan" could change this. 

The plan, unveiled on Tuesday, promised to reform the CCCFA to "make it easier for homebuyers to access credit". 

"These over-prescriptive consumer lending laws have led to Kiwis missing out on loans," said Commerce and Consumer Affairs Minister Andrew Bayly when first signalling the changes in January. "This is another important step in meeting our Coalition agreement with ACT, to rewrite the CCCFA to protect vulnerable consumers without unnecessarily limiting access to credit." 

Mortgage Specialist Adrian Dale acknowledged there had to be strong checks and balances when accessing a loan but told AM the current laws were too restrictive. 

"I see this as a real positive move for the market to allow not just first homebuyers but anybody really looking for mortgages - who are creditworthy - to be able to do so," he said. 

Dale added he's seen many creditworthy people miss out on loans due to the CCCFA. 

"There have been definitely instances in the last three to four years where you're scratching your head thinking... 'They've done a strict budget, they've got out the Excel spreadsheet, they know they can afford it what they wanted' but, for some reason - I think because of this too restrictive legislation - the bank has said, 'No.' 

"Overall, I just think it's a... worthwhile exercise for [the Government] to take. 

"It'll be a simplification of the whole process... what I'm hoping to see is less paperwork, less time to actually get a loan across the line - it takes about two weeks at the moment - and, of course, more people being able to get to that Kiwi dream of owning their own home." 

Adrian Dale.
Adrian Dale. Photo credit: AM

Loosening housing market 

The Reserve Bank (RBNZ) in June loosened restrictions on lending, known as loan-to-value ratios. Those ratios were scrapped during COVID-19 before being reinstated and tightened in response to skyrocketing house prices. 

Banks can lend 15 percent of their new loan to owner-occupiers wanting to borrow more than 80 percent of a home's value. That's up from 10 percent in 2022

The Reserve Bank has also signalled interest rates could soon creep down given the stagnant economy. 

ASB anticipated official cash rate (OCR) cuts "to begin in the second half of this year" but believed "the RBNZ will want to gain further confirmation from the pricing data that core inflation is falling before cutting". 

The baseline interest rate hit 5.5 percent in May and has been held for five consecutive meetings since. 

ASB is picking the OCR will drop to 5.25 percent by the year's end.