Government changes controversial lending rules

The government is making changes to its controversial loan laws, following complaints that it was preventing some people in a decent financial position from getting mortgages and other loans.

By Kathryn Armstrong

The rules were changed in December in a bid to protect people against loans they could not afford.

However, this meant that banks and other lenders had to take a closer look at people’s spending when assessing the financial situation, especially when it came to their spending.

“Someone would bungee jump and then the bank would say, ‘How often do you bungee jump? ‘” Economist Tony Alexander said.

He thinks part of the problem was that as banks feared huge fines if they failed to apply the new rules correctly, they became incredibly cautious.

Trade Minister David Clark said the problem was how the rules were interpreted.

He said the rules have now been clarified to make them simpler.

This includes clarifying that where borrowers provide a detailed breakdown of future living expenses, there is no need to learn current living expenses from recent banking transactions.

Nor do lenders need to treat a loan applicant’s regular savings as an expense.

“In very simple terms, that means banks don’t have to dig into your bank statements for the past few months,” Alexander said.

They can take your word for your future spending.”

Meanwhile, a broader investigation into the rapid implementation of the December CCCFA changes continues.

David Clark said that so far there was no reason to believe that the new laws were the main driver of the loan reduction.

ACT chief David Seymour welcomed the clarification of “excessive lending rules that allowed people to choose between Netflix and a mortgage”.

Seymour said the ACT has been calling for changes to the law since January after the effects of “were crippling for those seeking a loan”.

“The occasional flat white should never have been a reason to keep a first-time home buyer off the market.”

Tony Alexander said that although it is too early to see a huge change in the amount of money loaned, there have been other noticeable effects.

“Applications going to banks, to mortgage brokers, really started to drop quite dramatically since probably just before December 1, partly because of loan-to-value ratios.”

Financial mentoring group FinCap said it has noticed positive changes since the December Lending Act was amended.

North Harbor Budgeting Service financial mentor David Verry said the reforms have led to the demise of mobile or payday lenders, like truck shops.

“The number of people we had before – I had clients who had five or six payday loans – I don’t see payday loans now, or anything like a payday loan,” he said.