Major changes expected to lending rules this year…

There are major changes coming to lending rules this year under the Credit Contracts and Consumer Finance Act (CCCFA) with an aim of increasing people’s access to loans and to reverse the current overly restrictive approach to lending.

Over the past couple of years lending rules have been tightened resulting in longer processing times for mortgages, banks have been looking closer into potential borrowers’ non-essential spending, and there has been an increase in people being denied mortgages where they would have previously been approved.

Under the tight consumer lending rules banks took a forensic look at borrowers’ spending habits especially on non-essential items like takeaway coffees and subscription TV. Borrowers who were identified to spend too much on non-essential items were perceived as being more likely to be unable to service a mortgage.

The new rules will look ahead at a borrower’s potential to repay a mortgage considering that people’s spending habits will change once they have one in place.

Borrower protections in place under the CCCFA will still be retained, such as the limitation on the amount of interest and fees for high-cost loans, and the requirement for lenders to help borrowers understand what they are signing up for.

The new rules may also soften the penalty regime for directors and senior managers in breach of the law. Currently, a breach of the lending rules will result in serious consequences for directors and senior managers of lending institutions, such as a fine of up to $200,000. This further contributes to the attitude of restrictive lending as lenders can be ultra-conservative in wanting to ensure they are not in any breach.

If you are looking to obtain a mortgage it pays to take financial and legal advice.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.