Lending law changes are not enough, say banks and brokers
Changes to the Responsible Lending Code and lending regulations have taken effect, but banks and brokers say more needs to be done to make it easier for borrowers to get home loans.
In December last year, responsible lending regulations were strengthened in a bid to reduce the harm being done by predatory lenders.
But a backlash from banks and brokers, who said the changes had gone too far and created unintended consequences, led Commerce and Consumer Affairs Minister David Clark to order a review of the changes.
As a result, some of the most controversial aspects of the tougher responsible lending laws will be eased, including the lengths banks have to go to in scrutinising potential home loan borrowers’ expenses.
People reported being turned down for loans based on things like spending too much on a dog, and mortgage advisers and opposition politicians claimed that the regulations had prompted banks and other lenders to become ‘‘ultra conservative’’, declining loans they would previously have made. Bank chief executives claimed that the tougher responsible lending laws had resulted in about a 6% to 10% drop in mortgage lending.
While welcoming the changes, banks and the property sales industry did not believe they went far enough.
‘‘The latest amendments address some of the issues raised by the changes which came into effect in December 2021, such as excessive inquiries by lenders into potential buyers’ living expenses,’’ Real Estate Institute chief executive Jen Baird said.
‘‘While the changes will be a relief to borrowers and lenders, bringing necessary clarity, they are modest in their scale.’’
The responsible lending changes had a significant impact on the property market, she said. ‘‘(REINZ) members saw a marked decrease in first-home buyers, and increased caution in the market, due to uncertainty around the ability to arrange suitable finance in time to be able to buy, particularly unconditionally.’’
She hoped that more changes would follow a review of the responsible lending regime by the Council of Financial Regulators, due to be published later this month.
Consumer groups that help people struggling under unaffordable debt have cautioned against changes that could make it easier for unscrupulous lenders to exploit desperate people.