What do the amendments to the “CCCFA” mean for borrowers?

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The Credit Contracts & Consumer Finance Act (CCCFA) is intended to protect vulnerable borrowers, and ensure that lenders adhere to responsible lending practices, provide the full disclosure of the true cost of the loan/credit facility they are taking out, and with recent amendments made, the Act continues to protect consumers from harmful lending practices.

On the 1st of December 2021, there were amendments made to the CCCFA.  These amendments are changing the application and assessment process for a home loan, and also some of the supporting documents banks/lenders will require borrowers to provide.

What is the current impact of the CCCFA?

The main impact we are seeing for borrowers applying for a home loan as a result of the amendments, is that they are having their spending habits more closely scrutinised in their most recent 3 months banks statements at the time of application.  This includes all bank accounts and credit cards held.

Banks/lenders must now include all discretionary spending as living costs when they assess the borrower’s affordability for the proposed loan they are applying for.  There has been a lot of recent articles in the media that have focused on this, and the negative outcomes of some borrowers’ loan applications due to buying too many burgers and lattes in the 3 months prior to applying for the loan.  These types of transactions would now be included in the overall food cost for the borrowers, and over the Christmas/holiday period we often see these costs inflated, especially where the borrowers have taken a holiday where they have eaten out for most meals each day away from home.

Banks/lenders must also now verify/account for the costs associated with properties such as rates and insurances, which includes investment properties.  This does have an impact on property investors with multiple properties, and in some cases has meant they can no longer add a property to their existing portfolio where prior to these changes they could.

What does this mean for a borrower?

Some banks are using data scraping technology, which will scrape the transactions in your last 3 months’ bank statements and will automatically sort the transactions into categories such as food, utilities, streaming services, vehicle, and transport costs, and more.  They can then use these exact costs averaged into a monthly spend for each category when assessing your affordability.

At Connect Me Mortgages we too have the technology to complete this data scraping of bank statements to establish if there will be any likely concerns with meeting the new affordability assessment requirements before submitting the application to a bank.  This will also highlight any areas of spending that may need to be adjusted before applying.

Changes are on the horizon…

There’s good news coming for first home buyers in the coming months ahead after the Minister for Commerce and Consumer Affairs David Clark has agreed to make initial changes to the Credit Contracts and Consumer Finance Act (CCCFA).  These changes will come into force by June 2022, which will make it easier for everyday Kiwis to borrow money.

First home buyers have had a hard time recently when applying for home loans, having their bank statements scrutinized heavily by having a lot of discretionary spending such as regular savings or payments to buy shares or buying burgers and lattes included in the assessment of how much they can borrow.  This is set to change and will revert back to banks being able to rely on a breakdown of future living expenses provided by borrowers, accounting for the fact the borrowers can cut back the discretionary expenses once they purchase their home.

One good thing to have come about for first home buyers because of a combination of several changes implemented, including limitation of over 80% lending, CCCFA amendments, debt-to-income ratios, and tax law changes for property investors, is a decrease in property prices, and a shift to it being a buyers’ market. Now is the time for first home buyers to seek professional advice about how to best navigate through the changes as they unfold.

Lending criteria are always subject to change.  The information contained in this blog is not tailored mortgage advice; please contact a Connect Me Mortgages Adviser to get tailored mortgage advice for your own financial position.