Rework Consumer Finance Law changes that make it too difficult to buy or finance a home.

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Rework Consumer Finance Law changes that make it too difficult to buy or finance a home.

This petition made change with 9,747 supporters!

John Bolton started this petition to Minister of Commerce and Commercial Affairs

Recent changes to Consumer Finance laws in New Zealand mean banks are forced to not trust what you tell them and dive into the details of your life.  They are no longer able to provide flexibility, as the law is very prescriptive.

This has significantly increased the time and effort to process a home loan from 5 working days to over 15 working days.  It has increased the amount of paperwork and inefficiency, which will lead to more fees passed on to consumers.  New home borrowers can expect to pay establishment fees going forward of $500-$1,000.

The changes will reduce the borrowing power for first homebuyers.  Banks already have conservative mortgage rates that they use to test affordability (currently 6.50%.). They also now use conservative expenses.  There are safety buffers everywhere that compound on each other.  How much is enough?  This is at a time that first homebuyers already have LVR deposit restrictions, and will soon have DTI (debt-to-income) restrictions.

It will impact on New Zealand's small business owners who will find it increasingly difficult to raise capital using their family home.  This is the predominant way small businesses borrow.

It will impact on older borrowers who will be considered more vulnerable simply because of their age.  Responsible lending ignores the equity (wealth) that a borrower has accumulated in their property.

If you have an emergency, good luck trying to borrow from the wealth tied up in your house!

It will impact on people buying before they sell, and who need bridging finance, because they won't be able to 'afford' the whole debt.  Moreover, lenders cannot charge fees on bridging loans to cover their costs making bridging loans uneconomic to provide in the first place.  This leaves the risk of buying before selling with the homeowner and that is anything but responsible.

It will mean that parents who are going through a divorce (which is all to common these days) will struggle to keep the kids in the family home when they split the assets.

If you own property, it will make it harder to go on to interest-only or stay on interest-only. 

Whenever you want to do anything to your mortgage like stay on interest-only or lengthen the term, or do a top-up, you will need to provide a full set of the same paperwork you'd need if buying a house for the first time. 

When you sell a property, if it is cross-collateralised with another property, the bank will do a full credit assessment to see if it should keep the proceeds from sale to reduce your other debts.

The law change was designed to protect vulnerable borrowers from shop trucks and predatory lenders, but nobody in Government thought about the wider impact on regular Kiwis trying to go about their lives.  They didn't think through the significant financial damage that overreach will cause, or they simply chose not to listen. 

Ironically vulnerable borrowers don't buy houses.

As a country we are drowning in cotton wool.  It is an unfathomable increase in bureaucracy and a high cost with no tangible benefit to society of applying this level of overreach to mortgages.

Possible implications:

If you don't already own a home, this is pushing the dream even further out.

Off-Plan buyers are more likely to default on property settlements due to rule changes between when they purchased and when they settle.

It will be near impossible to own a home and have kids.  (The law now requires banks to anticipate changes in your expenses so you likely cannot buy a house if you are pregnant.

When push-comes-to-shove, Kiwis figure out how to live on a tighter budget.  We adjust our spending patterns and get a boarder.  It is almost a right of passage to own a house and be broke.

This is a government-induced credit crunch that will starve small businesses of access to capital.  This is just when many will need it after a year of COVID and the end of the Government wilfully printing money.  To me, it feels that access to capital will be critical in 2022.

A crash in house prices.  This could happen but I don't want to be chicken little.  The Government has desperately pulled lots of levers to slow the housing market but have they pulled too many?  Removal of tax deductibility, LVR restrictions, higher interest rates, higher tax rates AND now a policy induced credit crunch. 

If we pull to much credit out of the economy and consumers lose confidence, that could flow into the broader economy and send NZ into a recession. 

Will we see a repeat of the boom, bust cycle for the construction industry with a dramatic decline in house building and prices softening as costs increase.  That equals a whole lot of pain.

Banks increasingly reluctant to lend. And as a result, borrowers having to go into more expensive second-tier options that cost more.  The average increase in the interest cost for a borrower going into a non-bank is about $6,000 per year.

Now here's THE THING.

When it comes to home loans, there was no problem to fix.  ANZ, which has 30% of the market, reports a home loan arrears rate of 0.50%.  That means in what was a pretty tough year, only one in every 200 homeowners missed a mortgage payment.

Some people will argue that reducing the amount people can borrow is a good thing.  I don't disagree, but regulations need to be flexible.  They need to be able to adapt to many different situations.  Banks were already responsible lenders and in many cases already too conservative.

The bigger issue was simply low interest rates, and well that has already been dealt with.

The Government has hit a nail with a sledge hammer.  It wasn't even a nail.  It was a pin.  And the impact will feel like a wrecking ball to those who are hit with the unintended consequences.

How did this become law?  And how could the Government and policymakers be so blind to the consequences?  In short: not genuinely listening to industry, and incompetence.

There are already people who are feeling the impact, but nobody will talk about their personal financial situations in public.  This won't play out like the typical crisis but real Kiwis will get hurt.

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This petition made change with 9,747 supporters!