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Significant changes to credit laws (new CCCFA rules)

3 February 2022

Photo by Andrea Piacquadio from Pexels

The law around lending money to consumers in New Zealand changed on December 1 2021, and it's already having a significant effect on property owners.

What has changed?

Changes to the Credit Contracts and Consumer Finance Act (CCCFA) intensified financing restrictions. Lenders are now required to gather and check more information about borrowers and their spending before granting a loan.

The new law makes directors and senior managers personally responsible for ensuring employees and agents follow compliance procedures and can face fines of up to $200,000. So, all lenders, including banks, have no choice but to be ultra-conservative with all new borrowing, including new mortgages, top-ups, credits cards, and consumer loans.

Lenders must also keep more extensive records of their suitability and affordability inquiries and lending decisions.

Why were the changes introduced?

The Government has made law changes to protect vulnerable Kiwis dragged into extreme debt by ever-growing accumulated interest. And so, the policymakers created new lending rules to ensure that people's borrowing matches their needs.

Designed really for high-risk consumer finance, the legislation has unintended consequences on the first-home buyers.

Unexpected and undesired effects on first home-buyers

Lenders now need to collect a lot more information from customers about their financial situation. They look into a range of expenditure categories like paying off debts, food, utilities, travel, etc. Lenders need to work out if customers have a 'reasonable surplus' left after paying their expenses to cover their loan repayments.

Increased scrutiny makes it harder to secure finance for "non-standard" borrowers, such as self-employed and individuals going through significant life changes, such as expecting parents, families going through a divorce or people approaching retirement.

Bridging finance applications will also be affected and harder to get.

Stringent lending criteria leads to lower approval rates. Higher compliance from banks makes the process of getting funding extremely slow. A complete application is required for top-ups or changes to existing loans such as going interest-only.

How do these changes affect investors?

Banks have updated credit policies and procedures to account for many recent changes, resulting in more in-depth checks and higher approval benchmarks.

Loan-to-value restrictions (LVR) were only re-introduced on November 1 2021, requiring most investors to have a 40% deposit to secure a property.

But the CCCFA changes do not apply to business and investment loans.

What the future holds

Since the introduction of the CCCFA changes in December, many people have come forward saying their loan applications were rejected due to their spending habits. The Minister of Commerce and Consumer Affairs David Clark is calling for an investigation to check if the banks are implementing new rules as intended or if they are adopting too hard a line.

In the meantime, borrowers are turning to non-bank lenders for alternatives. Non-bank lenders are reporting a surge in mortgage inquiries in the wake of new lending rules, even though they tend to offer higher fees and are also covered by the CCCFA.

The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice, you should seek independent legal counsel. does not accept any liability that may arise from the use of this information.

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What the community has to say
  • CC

    The CCCFA does NOT cover borrowing for investment property or if the entity is a trust or company (or partnership). This important info should have been included in the article! There is also no dollar figure over which a "complete application" has to be made. And non-bank lenders have to follow the same rules.

  • LL

    It seems that the information that a bank can ask from lenders is quite an invasion of privacy. A landlord cannot ask the same Q due to new privacy laws, even though non payment of rent can have huge financial implications for a landlord paying a mortgage on that property. Also Q a landlord may want to ask, but can't, are to enable them to protect say a million dollar investment, however, a bank can.
    It seems like 2 opposing sets of rules here when it comes to privacy.

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