New lending restrictions lock prospective home owners out of the market

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Low-deposit lending restrictions and other lending law changes are locking prospective home-owners out of finance they would have qualified for weeks ago, financial advisers say.

The proportion of home loan applications that result in loans has fallen from 36 percent to 30 percent since the start of December, according to data from credit reporting agency Centrix.

Centrix estimated the lending slowdown amounted to almost $2 billion, with home loans dropping from an average of 30,000 per month to 23,000.

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Financial Advice New Zealand chief executive Katrina Shanks said the changes were supposed to protect vulnerable borrowers from unscrupulous lenders, but had unintended consequences, putting would-be borrowers at a big financial disadvantage.

She said a survey of mortgage advisers identified a significant reduction in pre-approvals not being renewed and cuts to lending levels because of the new requirements of the Credit Contracts and Consumer Finance Act (CCCFA).

“Within two days we had 300 stories of clients who had not been able to obtain a mortgage or it had been more difficult, or had been reduced, or declined altogether,” she said.

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“The issue with the CCCFA is that it’s a very wide net that’s captured all New Zealanders, not just those who are vulnerable. It’s made the affordability test so hard now that the average New Zealander who was not vulnerable cannot obtain the credit they could previously.”

In some cases, Shanks said banks were refusing loan applications or drastically cutting the amount they would lend because people were spending too much on takeaway food and coffees.