Homeowners can now chill and watch Netflix and still be eligible for a home loan after the latest and final changes to the Credit Contracts and Consumer Finance Act came into effect last week.
The backpedal from the government around allowing banks to narrow the expenses considered by lenders and exclude discretionary spending came into play last Thursday.
A review of the CCCFA was carried out after it was blamed for a drop in lending activity across a range of consumer credit products. Initial changes in July last year saw banks no longer consider savings and investments as ongoing expenses and disregard previous spending habits and future spending habits.
EasyStreet Mortgages financial adviser Gareth Veale said some banks had already adopted the changes ahead of them and the result had meant more people were either eligible for bank loans or could borrow more and therefore buy a better home.
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“There’s no longer the same scrutiny over expenses that there was which is huge.”
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Discretionary expenses such as subscriptions like Netflix – or even shopping trips to Kmart – are now excluded from the banks’ calculations on eligibility.
Veale said this made far more sense as after paying rent, power and other expenses people usually spent what they had left and the banks shouldn’t expect someone with a home loan to have these same spending habits.
EasyStreet Mortgages financial adviser Gareth Veale. Photo / Supplied
The new CCCFA rules introduced at end of 2021 impacted about one in five borrowers, he said, and these people were now able to borrow again or borrow more.
“… And not necessarily go through three months of living like a pauper in order to meet a loan that they should have been eligible for all the way along.”
Although the latest changes appear to have snuck under the radar, CoreLogic chief property economist Kelvin Davidson said it was only a small part of the problem. He said it would not override other mitigating factors such as whether someone could meet the banks’ serviceability criteria which was proving harder for some with the higher interest rates. Mortgage serviceability test rates now sit in the mid-8% to early 9%, according to the latest Financial Stability Report from the Reserve Bank of New Zealand.
“OK, they may be able to ignore a few more of your expenses than previously, but you still have to be able to fork out the cash to pay the mortgage.”
People also had to be able to prove income stability. “I think it adds a little bit more demand for sure, but it probably doesn’t transform things on its own. But then when you add it to LVRs (easing), to peaking mortgage rates, tighter listings, net-migration – it’s just another thing on the list that suggests this downturn is almost done.”
The Reserve Bank of New Zealand headquarters in Wellington. The RBNZ's latest report says the financial system is well placed to support the economy. Photo / Getty Images
Whereas the CCCFA was people’s big concern over a year ago, it now seemed to have been pushed right down the list and this could be because of changes made last year, he added.
New Zealand Banking Association chief executive Roger Beaumont said the latest tweaks to the CCCFA regulations still meant affordability assessments were needed for all types of lending and borrowers.
The assessments were also carried out on any new credit from an increased overdraft or credit card limit to a home loan and that could make it tricky in the case of natural disasters or a change in personal circumstances.
“We saw that to devastating effect with the recent North Island flooding and Cyclone Gabrielle, where the government had to introduce two separate temporary changes to the regulations to provide banks with the flexibility to provide affected customers with credit, including low or no interest loans or overdrafts. That took time.”
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