With the new changes to the Credit Contract and Consumer Finance Act (CCCFA) coming into effect in December 2021, there are important things to know for new borrowers, including first-home buyers. Plus, for existing mortgage holders, home loan top-ups could become a little more challenging to obtain.

Here’s a helpful summary from our SHARE advisers.

CCCFA changes in a snapshot

In short, the CCCFA changes set more prescriptive standards that lenders must meet, when assessing a borrower’s ability to service and repay debt.

To this end, the new rules require that lenders and financial advisers make certain inquiries, as part of the application for a new loan or before a ‘material change’ is made to a loan.

These allow lenders to determine if the loan is suitable and affordable for a borrower, based on their income and expenses. Also, lenders can’t just rely on what the borrower tells them in all cases: they must take certain steps to either verify income based on reliable evidence or, if that’s not practicable, consider whether the source or amount of the income is realistic.

It’s important to note that lenders have already been conducting similar assessments as part of the application process, but the changes now make this explicit and more prescriptive.

What first-home buyers need to know

As we said, lenders have already been applying a broad set of criteria to assess new mortgage applications, including asking borrowers to provide a list of their expenses.

But the CCCFA changes require lenders to have a more ‘granular’ view of borrowers’ spending. For buyers[AM1] , this may entail a longer verification process on income and expense information – something to think about if you’re planning to buy your first home.

Lenders have already started to adjust their processes, and according to commentators, the effect has been felt in the mortgage market. Looking for guidance? Get in touch – our SHARE mortgage advisers are here to help.

What homeowners need to know

Here in New Zealand, it’s quite common for homeowners who have equity in their home, and the ability to make extra repayments, to top up their mortgages and use the extra money as consumer debt – to buy a new car, pay for their next holiday, do a home renovation and more.

This is still possible, of course, but under the new credit rules, getting an approval is likely to be a little more challenging. Lenders now require more information and documentation. For example, borrowers looking at renovating their homes may now be required to provide actual quotes, rather than just rough estimates. The lender will then only lend the quoted amount, meaning borrowers have a smaller ‘wiggle room’. Additionally, conditions may be added to the top-up approval, for example requiring the borrower to repay the mortgage top-up within an agreed timeframe (a few years).

Without a timeframe, as it has been the case until now, it can be tempting to keep the extra debt for the entire duration of the mortgage. While interest rates on mortgage top-ups are usually lower than personal loans, the overall interest costs can add up significantly over an extended period. So, the rationale for these changes is to ensure that mortgage top-ups don’t put borrowers in a worse financial position.

Are you considering a top-up? Once again, we’re here to help: our SHARE advisers can assist you with the application process.

Get in touch

The lending landscape is constantly shifting, and that’s why talking to an adviser can be of help. We keep a close eye on any changes that might arise, and their implications for clients.

Like to learn more? Click here to find your local adviser.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

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