The amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) that were introduced on 1 December 2021 have resulted in many borrowers struggling to gain lending approval for a property purchase.
The amendments include regulations requiring lenders to look more closely at the affordability of loans for lending applicants and the suitability of particular loan structures based on the financial position of their customers. This has prompted banks to delve into applicants’ spending habits and has resulted in an increase in rejected applications.
Other restrictions imposed on lenders include regulating the way banks and other lenders can advertise their products. Lenders are required to adhere to minimum standards that require lending advertisements to be clear to customers and not confusing. This places a higher threshold on lenders than the requirements not to mislead or deceive customers as required under the Fair Trading Act 1986.
Finally, greater restrictions have been placed on low equity lending meaning that banks are more limited in approving applications from borrowers with less than a 20% deposit.
The effect of these legislative changes has been detrimental to the ability of first home buyers to obtain lending to enter the property market; mortgage and business advisors have openly opposed or criticised these changes since their introduction.
This opposition, combined with the perhaps unintended difficulties that the changes have created for first home buyers, has prompted the government to review the changes on the basis that lenders’ enquiries under the legislation were too intrusive for customers.
The proposed amendments will no longer require lenders to take a deep dive into the spending habits of potential borrowers in order to assess future spending for applicants. A more comprehensive list of the changes to ease the December amendments can be read here.
Despite the challenges caused by the December amendments to the CCCFA, it appears that they are only temporary and that following the finalisation and enactment of the proposed easing measures, potential borrowers will be able to proceed without the invasive or unreasonable inquest that many have recently experienced.