New Zealand's government is reviewing new banking regulations after evidence that lenders are applying the rules so rigorously that many people are being shut out of the housing market.
The government has asked the Council of Financial Regulators to bring forward an investigation into whether lenders are implementing the new rules as intended, Commerce Minister David Clark said. That follows a report from credit bureau Centrix that just 30 per cent of home-loan applications in December resulted in loans, down from 36 per cent before the Credit Contracts and Consumer Finance Act took effect on Dec. 1.
"It may be that in the initial weeks of implementing the new CCCFA requirements there has been a decision to unduly err on the side of caution," Clark said in a statement. "An investigation by the Council of Financial Regulators will determine the extent to which lender behavior, in respect of the CCCFA, is a significant factor in changes to banks' lending practices."
The government introduced the new law to protect vulnerable borrowers following evidence of questionable bank lending practices in Australia, and as soaring New Zealand property prices meant many buyers were taking out ever larger loans. But the suggestion the new law could be stopping many from buying a house will be awkward for Prime Minister Jacinda Ardern, who has frequently said she wants more New Zealanders to be able to own their own home.
Katrina Shanks, chief executive of Financial Advice New Zealand which represents mortgage brokers and other advisers, said the industry supports the protection measures in the new law but there are now clearly unintended consequences.
"Some of the stories almost defy logic, like being refused a loan or having the amount cut drastically because you're spending too much on coffees and takeaways," she said. "We believe the intention of this legislation was not to reduce the availability of credit for the average Kiwi who was not vulnerable and could afford a mortgage previously."
Under the CCCFA, lenders have additional obligations when determining affordability and suitability of a loan, she said. That has resulted in them having to review clients' income and expenditure in much greater detail, and they are now determining expenditure previously considered discretionary as non-discretionary in order to meet the new requirements.
Clark said a number of factors affecting the housing market have occurred at the same time, including rising interest rates and increased global risks that may be prompting banks to lend more conservatively.
The Council of Financial Regulators -- made up of the Reserve Bank, Treasury, Financial Markets Authority, Commerce Commission and the Ministry of Business, Innovation and Employment -- will take all those factors into account in its review, he said. - Bloomberg
