Government tweaks controversial lending rules

The Government is making changes to its controversial lending laws, following complaints that it was preventing some people in decent financial positions from being granted mortgages and other loans.

By Kathryn Armstrong

The rules were changed in December in an attempt to protect people from loans they couldn't afford.

However, it meant that banks and other lenders had to look at people's spending at lot closer when assessing financial situations, especially when it came to their expenses.

"Somebody would go bungy jumping and then the bank would say, 'how often do you go bungy jumping?'" economist Tony Alexander said.

He believes part of the problem was that banks were worried receiving huge fines if they didn't implement the new rules correctly, they became incredibly cautious.

Commerce Minister, David Clark said the issue was how the rules were being interpreted.

He said the rules have now been clarified to make it more straightforward.

This includes specifying that when borrowers provide detailed breakdown of future living expenses, there is no need to inquire into current living expenses from recent bank transactions.

Lenders also don't need to treat any regular savings a loan applicant has as expenses.

“In very simple terms, it means the banks do not have to go delving through your bank statements for the past few months," Alexander said.

They can take your word on what your expenses will be in the future."

Meanwhile, a broader investigation into the early implementation of December's CCCFA changes is continuing.

David Clark said that so far, there is no reason to believe that the new laws is the main driver in reduced lending.

ACT leader David Seymour welcomed the clarification to the "over the top lending rules that had people choosing between Netflix and a mortgage".

Seymour said ACT had been calling for changes to the law since January after the effects of "were crippling for those looking for a loan".

"The occasional flat white should never have been a reason to keep a first home buyer out of the market."

Tony Alexander said that while it's too early to have seen a huge change in the amount of money being leant, there have been other noticeable effects.

"The applications going through to the banks, to the mortgages brokers, really started falling away quite substantially from probably just before December 1, partly because of the loan-to-value ratios."

Financial mentoring group FinCap said they have noticed positive changes from December's law change to lending.

North Harbour Budgeting Service financial mentor David Verry said the reforms have meant mobile or payday lenders, like truck shops, have mostly disappeared.

"The number of people that we had coming into us before - I had clients that had five or six payday loans - I'm not seeing any payday loans now, or anything close to a payday loan," he says.