CCCFA Changes and the Impact on Borrowers and House Prices

Changes To the CCFA Revealed

It’s no secret that the Credit Contracts and Consumer Finance Act (CCFA) was not loved by many.

It has been widely criticised for bringing in too much paperwork and causing issues for capable borrowers.

Less than two months after the rules came in, a review was ordered and after submissions changes have now been announced.

These changes include:

  • Clarifying that when borrowers provide a detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
  • Removal of regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into
  • Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records.
  • Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable

These changes will come into effect in July and further changes may also come. [source]

Is the CCCFA, Back Tracking Changes, Enough?

One of the main criticisms of the Act was that it focused too much on spending habits – the infamous cups of coffee that deprived some people of their home loans – and this will continue with detailed breakdowns of spending still being required.

The New Zealand Banker’s Association chief executive Roger Beaumont said the changes weren’t likely to have much impact.

“Most of the existing requirements remain in place, meaning customers will still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change.

While we agree with the government’s aim to protect vulnerable consumers from unscrupulous lenders, the one-size fits all approach for all lenders and all loan types means banks don’t have the same discretion or flexibility they used to.” [source]

While these changes might help, there is still extra work to be done for those looking to borrow money, so it pays to talk to an expert before applying for your home loan.

We can discuss your situation with you and help you find the most appropriate options as well as help you get your numbers in order for your application.

Mortgage Rates Up Again (but there might be incentives coming)

Several of the major lenders have raised their fixed rates again, including ANZ, Kiwibank, ASB and Westpac and it’s now unlikely that you’ll find a fixed rate below 4%. [source]

But, with the number of mortgage applications dropping, it looks like the banks might also start trying to entice customers with special deals.

Recently Kiwibank, BNZ & Westpac have offered customers one per cent of their home loan as a cash contribution up to $20,000, a significant increase on previous deals.

It will be interesting to see if other lenders follow suit as the war for business heats up. [source]

While these incentives are tempting, especially if rates are higher, you should still ensure that the other details of the loan product are right for you and that you can meet any of the conditions attached to the deal.

The best thing to do is to seek advice from a trusted mortgage adviser before making any firm decisions.

Property Tax Law Changes for Investors

If you own a residential rental property, then you need to be aware of recent changes to property tax laws.

The first is around the Bright-Line property rule which taxes the financial gains when buying and selling a home for income.

New builds now attract a shorter 5-year bright-line period and there have also been modifications to the main home exclusion policy when there is another home on the same land for investment purposes.

If the main home is over 50% of the land area, then the existing exclusions continue to apply.

However, if the home is under 50% of the land area, any gains made are apportioned between the rental and the main home.

And, if the main home is not used for periods of more than 12 consecutive months then the time apportioned rule applies in all circumstances.

The good news is that bright-line filings can now be processed through myIR, making it easier. [source]

It’s also important to recognise that the ability to claim interest as an expense on investment loans for residential properties is being phased out for any properties purchased on or after 27 March 2021.

You won’t be able to claim interest as an expense for properties purchased after that date. And the ability to deduct interest as an expense for properties purchased before that date is being phased out, ending 31 March 2025. [source].

Please note that for accounting and taxation advice, you will need to speak with an Accountant or any tax expert.

Lending Volumes Continue to Drop

The latest figures from Centrix show that demand for mortgages is down again – by 27% in the year to the end of May. And those who did borrow borrowed less money than the previous year, with the value of loans falling by 38% year on year. [source]

What does this mean for everyday borrowers? Well, not a lot in all seriousness. We know that the property market has shifted slightly, with the frenzied buying period is over. So this helps to explain why lending is down.

In saying that, it could still be the perfect time to make your next property move and we are happy to help you make the decision with some tailored financial advice.

House Prices Are Still Dropping

The latest QV report shows that house prices are now down to similar levels seen in November last year. Independent economist Tony Alexander says his latest survey of real estate agents with REINZ shows that the market is now being impacted by a fear of overpaying on the part of buyers, especially investors.

Agents are reporting fewer people attending open homes and auctions, as well as falling prices in their locations. [source]

It was also noted that ex-pat Kiwis planning to return from overseas were not boosting the market as expected.

So, what does it all mean?

Well, if you are buying and selling in the same market, then the current price fall will not impact you hugely. Properties are still selling for good prices.

Just this week a property in Greenlane sold for nearly $500k above its reserve.

If you have been thinking about your next move in the property market, then it’s time to get informed about what you might be able to do.

Get in touch with us today for an obligation-free chat about your next move –  Oliver Broomfield Mortgage & Insurances 

Frequently Asked Questions

The advantage of using a mortgage adviser is that they can negotiate with a number of lenders to find the deal that best suits you. They do all the leg work for you, saving you time.

We help assess all your options, whereas the Bank is restricted by being only able to present one view.

While banks expect the client will negotiate with them, or accept the given rate, mortgage brokers are more likely to go to bat for you, to get a lower interest rate.

Our processes make financing your house purchase easy; providing quick personal service that takes the stress out of financing your home loan. With our wealth of experience in the finance industry, we know how to get the best deal for you.

Absolutely! We can still work with you using email, phone calls, and video calls. Whatever your financial situation is, we have a range of options to communicate with you whatever circumstances.

Yes, we have an online application system or a pdf form that can be completed. Supporting documents can either be uploaded directly into our system or emailed. We can use telephone, zoom, or email for further clarification or look at scenarios and receive and send information.

A home loan pre-approval is a conditional approval confirming that we can lend you a certain amount of money, provided the property you purchase meets the lender’s home loan criteria. It’s a good idea to ask us for a home loan pre-approval before you start house hunting. It will help you determine how much you can borrow and to give you some bargaining power when negotiating a purchase price.

Saving a deposit is probably the biggest hurdle for most first home buyers. First home buyers need to have saved at least 5% deposit with 20% or more being the optimum. Remember that this can be made up from a KiwiSaver first home withdrawal and some first home buyers may also be eligible for a HomeStart Grant. Gifts and deed of debts from friends and family are also common.

While there has been a lot of publicity about the need for home buyers to have a 20% deposit; there are still options available for you. We can talk you through what may be available to you including:

  • The ability to access low equity loans
  • Using your Kiwisaver contributions towards your deposit
  • Building your own home
  • Accessing parental assistance to increase your deposit.

The size of your deposit makes a big difference to the interest rate and the other costs you could potentially pay on your home loan. Generally, for lending where the deposit is less than 20%, the lender will also charge a Low Equity Fee (LEF) or Lenders Mortgage Insurance (LMI). Interest rates may also be higher for loans with a low deposit.

Whilst assessing a loan application, banks will scrutinise your bank account (usually the most recent 3 months bank statements).

In particular, they are looking at how well (or not) you manage your account.

Do you have dishonors, and or unauthorised overdrafts?

The better your account conduct the better your chances!

The banks also want to make sure all expenses including fixed and discretionary costs are included in the mortgage application expenses.

This will be determined by your income, your capacity to repay the loan, and the property type along with the current lending restrictions imposed by the reserve bank. Contact us today to find out.

The income you will need to earn will depend on the size of the loan, the bigger your loan the more you will need to earn.

As a rule of thumb if you are a first home buyer who is currently renting and have also been able to save some money there is a good chance you will meet the banks’ income criteria.

A LIM report is a summary of information that the local Counsel hold on a property. The report covers off information regarding consents, permits, code of compliance, potential erosion, subsidence, flooding of any type and the possible presence of hazardous substances. private and public stormwater and sewerage drain, rates, including any overdue rates.

Your solicitor should review this document.

Absolutely, we do this every day for many existing clients. We can use our scenario calculator to ensure you meet lender criteria and affordability for yourself.

Yes, you can borrow money in New Zealand and may be able to borrow up to 80-90% of the purchase price of a home.

To be eligible to for the KiwiSaver First Home Withdrawal Scheme you must:

Be purchasing your first home;

  • Have been a member of KiwiSaver for a minimum of three years;
  • Have your KiwiSaver account with a KiwiSaver provider that allows saving withdrawals; and
  • Intend to live in the property for at least six months
  • We recommend that you contact your KiwiSaver provider and check their individual policy on withdrawals for first homes.
  • If you are eligible to withdraw money from your KiwiSaver, you may also be eligible for a first home deposit subsidy of up to $20,000.00 from Housing New Zealand – known as a HomeStart Grant.

Using a mortgage broker generally means no direct costs to you for their services but there are other unavoidable costs. These may include:

  • A Registered Valuation ($800 – $1,200)
  • Solicitor Costs ($800 – $1,500)
  • LIM report ($150 – $400)
  • Builder’s Report ($100 – $500)
  • Weather Tightness Report for Monoclad houses ($300 – $1,000)
  • Finance fee for non-bank lending (~1%)

Prices can vary. Always request a quote before ordering any of these services. 

The banks all have different policies and risk tolerances. Buyers can get frustrated and waste a lot of time going to banks that won’t suit their needs.

Using a mortgage broker gives you a view of all the banks and their policies. It means you find the right bank faster and with less stress. With a mortgage broker, getting a mortgage isn’t complicated.

It’s about proving you have enough deposit and enough income and then heading to the right bank with that information.

Some tips to making your mortgage application easier: get your documentation sorted early and keep your spending as low as possible in the 3 months leading up to your application.

We will always act in the best interest of the client and will ensure that any deal we broker is the best we can do for the client.

While there can be variances in the amount different lenders pay us we do not favour any particular lender for this reason.

We are also members of NZFSG & Financial Advice New Zealand both of which have ethics that we must adhere to.

We can also be audited at any time by the FMA (Financial Markets Authority)

No… The lenders that use our services see us as an efficient channel to obtain business from. They only pay us on success i.e. when the loan settles.

We sit alongside their other channels such as a bank branch or mobile manager.

The cost of obtaining business from a mortgage broker is comparable to these other channels the banks choose to use.

For this reason, it will cost you no more to use our services.

Mortgage advisers (often called mortgage brokers) are paid by the bank when a mortgage is drawn down.  If that mortgage is discharged (repaid and closed) within a short amount of time – typically 27 months – the broker must repay some or all of the commission (often referred to as a clawback).  In this instance, the mortgage broker has essentially done the work for no pay.

We reserve the right to charge for our time if a clawback is incurred.  The fee will be the estimated amount of hours the mortgage took at an hourly rate of $250 per hour.  Unlike other fees, such as Break Fees from the bank, we have capped the amount we can charge clients at $2,500.

If you are refinancing or selling your house, the best thing to do is immediately talk to your adviser and discuss if any clawback fees will be charged.

If the property is for you to live in, this is something you should discuss with your Lawyer at your initial meeting.  If it will be an Investment Property, you should discuss with your Accountant.  We would also suggest you find a property accountant, someone who deals in property all the time rather than just as a side part of their business.  

Refinancing creates an entirely new mortgage and an opportunity to restructure in a way that better suits your personal situation.

People refinance for lots of personal reasons, from changing circumstances to life goals and interest rates.

People often refinance with us because they want to get ahead faster and take advantage of the smart Go Home Loan structure and personalised support we offer.

The key to an effective loan structure is putting your savings and income into an account that helps reduce the daily interest costs of your mortgage, not a separate unlinked account.

Why? By combining all your income and savings against your Go Home loan, you’re making your money work harder for you.

A Go Home Loan is a much simpler mortgage structure that still uses your income and savings to reduce your daily interest costs.

Generally, banks offset your money from multiple accounts. Some clients find it difficult to track multiple accounts and figure out how much interest is being charged or offset.

We find that using a Go Home Loan is an effective loan structure by putting your savings and income into an account that helps reduce your daily interest costs.

As soon as you have decided to look for a property, the earlier the better.  We recommend a good, early, communication plan with your entire team including your Mortgage Broker, Accountant, and Lawyer/Solicitor