Mortgage brokers celebrate changes to controversial lending laws

Commerce and Consumer Affairs Minister David Clark says the Government has updated controversial lending rules, which have been blamed for a “credit crunch” on first-home buyers in particular.

The rules were introduced as part of an effort to protect vulnerable borrowers from loans they could not afford.

But mortgage advisers, and opposition politicians, claimed they had unintended consequences, and prompted banks and other lenders to become “ultra conservative”, declining loans they would previously have made. People reported being turned down for things like spending too much on a dog.

John Bolton, chief executive of mortgage broking company Squirrel, who led the campaign to get Clark to make changes to his new laws and regulations, said: “They have listened. They have heard. They have made appropriate changes without throwing the baby out with the bathwater.

“These changes deal to the immediate issue. It's a good outcome,” Bolton said.

Roger Beaumont, New Zealand Bankers’ Association chief executive, said: “We think they’ve identified some of the main pain points for consumers, but it’s not clear the changes announced today will move the dial enough to make a difference.

“More detail is needed to see how the changes will actually work.”

Clark said the planned changes to the new lending laws clarified that when borrowers provided a detailed breakdown of future living expenses, there was no need for lenders to inquire into current expenses from recent transactions.

Brokers had complained that banks had assumed that current expenses would continue once a mortgage was issued, allowing no leeway for borrowers to adjust their spending when they had a loan to repay.

Lenders also did not need to count savings and investments as outgoings, Clark said.

Some people had reported having a higher KiwiSaver contribution rate while they saved a deposit had counted against them, because banks calculated how much they could afford on the assumption that contribution level would continue.

The requirement to obtain information in sufficient detail would only relate to information provided by borrowers directly rather than information from bank records.

The Government was also provided alternative guidance and examples for when it was “obvious” a loan was affordable, he said.

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