Responsible lending changes take effect, but banks doubt they’ll give mortgages a boost

Trade and Consumer Affairs Minister David Clark has come under heavy criticism from banks and mortgage advisers for changes to the Responsible Lending Act.

ROBERT KITCHIN/Stuff

Trade and Consumer Affairs Minister David Clark has come under heavy criticism from banks and mortgage advisers for changes to the Responsible Lending Act.

Changes to the responsible lending code and lending regulations have come into force, 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 tightened in a bid to reduce the damage caused by predatory lenders.

But a backlash from banks and brokers, who said the changes went 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 more controversial aspects of the stricter responsible lending laws will be relaxed, including the efforts banks must make to review the spending of potential borrowers.

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People said they were 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 said the regulations prompted banks and other lenders to become “ultra conservative”, refusing loans they would have previously fabricated.

Bank chief executives said tougher responsible lending laws have led to around 6% to 10% declines in mortgage lending.

While welcoming the changes, banks and the property sales industry did not feel they had gone far enough.

Jen Baird, chief executive of the Real Estate Institute, said: “The latest amendments address some of the issues raised by the changes that came into effect in December 2021, such as excessive demands from lenders on living expenses for potential buyers.

“While the changes are a relief for borrowers and lenders, bringing needed clarity, they are modest in scale.”

Responsible changes in lending have had a significant impact on the real estate market, she said.

“Across the country, REINZ members have reported the negative impact of reforms on capable borrowers. Members have seen a marked decrease in the number of first-time home buyers and increased caution in the market due to uncertainty about the ability to find suitable financing in time to be able to buy, particularly unconditionally” , she said.

Roger Beaumont says banks make decisions about banks with them on a case-by-case basis.

PROVIDED

Roger Beaumont says banks make decisions about banks with them on a case-by-case basis.

She hoped further changes would follow a review of the Responsible Lending Regime by the Council of Financial Regulators, which was due to be released later this month.

Consumer groups that help people struggling with unaffordable debt have warned of changes that could make it easier for unscrupulous lenders to exploit desperate people.

Mortgage adviser Campbell Hastie says banks have become more manageable as their staff have become accustomed to stricter responsible lending laws.

BEVAN READ / Tips

Mortgage adviser Campbell Hastie says banks have become more manageable as their staff have become accustomed to stricter responsible lending laws.

Roger Beaumont, Chief Executive of the New Zealand Bankers Association, said: “We eagerly await the results of the ongoing review by the Council of Financial Regulators.

“We believe that by working with the government and organizations 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. allow.”

Mortgage adviser Campbell Hastie said banks and brokers had become more accustomed to working with the stricter responsible lending rules, which had made the borrowing process smoother.

After December, the banks were at first very harsh in reviewing the spending of people applying for loans and did not think they could accept budgets from them in which they committed to changing their spending habits after getting a home loan.

Banks were now willing to accept those budgets and pledges, he said.

“The bank will say, ‘You had a responsible and lasting conversation with the client, and we’ll take that,'” he said.

“It makes more of a difference than these rule changes will,” he said.

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