The government is making changes to its controversial lending laws after complaints it was denying some people of decent financial means access to mortgages and other credit.
By Kathryn Armstrong
The rules were changed in December to protect people from borrowing money they couldn’t afford.
However, this meant that banks and other lenders had to take a much closer look at people’s spending when assessing their financial condition, especially when it came to their spending.
“Someone went bungy jumping and then the bank said, ‘How often do you bungy jump?'” said economist Tony Alexander.
He believes part of the problem was that banks, fearful of hefty fines if they didn’t implement the new rules correctly, became incredibly cautious.
Trade Secretary David Clark said the problem was how the rules were being interpreted.
He said the rules have now been clarified to make it easier.
This includes stating that a detailed breakdown of future living expenses by the borrower does not require asking about current living expenses from recent bank transactions.
Lenders are also not required to treat a loan applicant’s periodic savings as expenses.
“Put very simply, this means the banks don’t have to sift through your bank statements for the last few months,” Alexander said.
You can have confidence in what your future expenses will be.”
Meanwhile, a broader investigation into the early implementation of the December CCCFA amendments continues.
David Clark said that so far there is no reason to believe that the new laws are the main reason for the reduction in lending.
ACT CEO David Seymour welcomed the clarification of “over-the-top lending rules that had people choosing between Netflix and a mortgage.”
Seymour said ACT has been calling for changes in legislation since January after the impact “was crippling for those seeking credit”.
“The occasional flat white should never have been a reason to keep a first-time homebuyer out of the market.”
Tony Alexander said that while it’s too early to see a big change in the amount of money borrowed, there have been other noticeable effects.
“Applications coming in to banks and mortgage brokers probably started falling quite sharply just before December 1st, partly due to loan-to-value ratios.”
Financial mentoring group FinCap said it has seen positive changes in lending since the law changed in December.
North Harbor Budgeting Service finance mentor David Verry said the reforms have meant mobile, or payday, lenders like truck shops have largely disappeared.
“The number of people we’ve had before — I’ve had clients who had five or six payday loans — now I don’t see payday loans or anything close to a payday loan,” he says.