COMMENT: Kudos to Commerce Minister David Clark for his recent announcement that there will be an inquiry into falling lending levels in the wake of the introduction of changes to the Credit Contract and Consumer Finance Act (CCCFA) back in December. It’s good to see that Clark is capable of reading the room given Labour’s track record of consultation (or lack of it) on other legislation, but an inquiry isn’t enough, and he’ll need to act quickly if he’s to avoid doing further serious damage to the first home buyers market.
There are many questions around how the Government could ever have allowed things to have got to this point. Given the loud and repeated warnings from many quarters prior to the enactment of the Bill, it’s inexcusable that it’s taken us getting to the point where the impact of those changes is simply too destructive to ignore for them to finally act.
If you haven’t been following the story, and don’t know what the changes to the act were about, they were introduced amid claims that they would protect vulnerable borrowers from unscrupulous lenders and address so-called “risky lending”, but right from the start it was always obvious that they were an enormous sledgehammer to crack a tiny walnut, particularly in the area of mortgage lending.
For example, ANZ, which has around 30% of the home loan market, reports a home loan arrears rate of just half of 1%, which means that for every 200 loans, one customer will miss a mortgage payment. No sane person believes that a default rate at that level requires consumer protection and, right from the start, this thing had the distinct signs of bureaucratic busy-bodydom all over it.
There are also questions over whether banks, themselves, have gone too far in their interpretation of the new rules. The more charitable amongst us might suggest that the onerous new penalties (up to $200,000 per breach) and prescriptive new guidelines which now require a bank to know the specifics of a customer’s spending rather than being able to use long-established generic formulas, has placed the banks in an invidious position. The less charitable amongst us (myself included) would say that the banks, themselves, are increasingly part of the problem and that a growing trend toward institutional “wokism” and a conservative approach to profitability have created a perfect storm in which they are willing stooges of stupid Government policy.
Ashley Church: “This thing had the distinct signs of bureaucratic busy-bodydom all over it.” Photo / Ted Baghurst
Either way, the avalanche of headlines which started appearing over the Christmas break were inevitable as, one by one, prospective borrowers started having loans knocked back over the amount they were spending on such things as coffee or dinners out, the level of their contributions to Kiwisaver or, in one highly visible instance, a $187 “spending spree” at Kmart.
To be fair, it’s entirely possible that there was more to some of these stories, but the sheer volume of them should send a collective shiver down our spines. Only a government which is oblivious to the consequences of its own actions and completely lacking in the kind of pragmatism which comes from experience could implement changes such as these at precisely the same time as they’re claiming to want to make things easier for first home buyers.
There are some who claim that the changes to the CCCFA were introduced to somehow deliberately create a credit crunch which would reduce lending and lower house prices, but the fact that first home buyers are the hardest hit by the new rules suggests that they were borne of stupidity and hubris rather than design.
It remains to be seen what, if any changes, are made as a result of the inquiry into the impact of the Act and I’m not confident that Clark understands the issue well enough to do anything useful – far less the sorts of things that would really move the dial for first home buyers.
But, regardless of any of that, I’m still confident that things will settle down later in the year and that borrowing will get a little easier for first home buyers – not necessarily due to anything that the Government does but simply because of the ‘settling down’ which normally takes place following the initial rigorous implementation of any new piece of legislation. If I’m right, the banks will find a sweet spot later in the year and lending will return to something that is closer to business as usual.
– Ashley Church is a property commentator for OneRoof.co.nz. Email him at email@example.com
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