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Dreams shattered as home loan approvals plunge after changes to lending law

Jason and Cindy Guild have had their home-buying plans derailed by a double whammy from the Reserve Bank’s restrictions on low-deposit loans and changes to the Lending Act meant to protect vulnerable borrowers.

The couple’s pre-approval for a loan from BNZ to buy a house in Auckland was canceled in December, just days before they were due to bid on a house in Maraetai, east Auckland.

“We thought this government was trying to put us in houses, but it seems that’s not the case,” said Jason Guild, an electrician employed by a large power transmission company.

Since changes to lending laws took effect in early December, the proportion of home loan applications that resulted in home loans fell from 36% to just 30%, said Keith McLaughlin, chief executive of the credit reporting agency Centrix, which tracks loan applications and approvals.

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In October, the rate was 39%, according to Centrix data.

The drop in the rate of home loans issued was worth nearly $2 billion per month, Centrix estimated, and represented a drop from 30,000 home loans per month before the changes to 23,000, on average.

The decline was steeper for consumer loans like credit cards, auto loans and personal loans, according to Centrix data, dropping from about 34% approved before December to just 23%, McLaughlin said.

The changes to the Lending Act were the result of the government’s attempts to protect “vulnerable” borrowers from unscrupulous lenders.

Houses cost much less, but in previous decades mortgage interest rates were much higher.

But mortgage advisers say they have pushed banks to become ‘ultra-conservative’ lenders, leaving many first-time homebuyers unable to get loans they would have been eligible for before the changes, creating an artificial credit crunch .

McLaughlin said the data appeared to back up their claims, but the true long-term impact would become clear in the coming months.

“What I see is that a proportion of people who would have been approved before December 1 are turned down. It’s a big proportion,” he said.

The decline in the proportion of loan applications approved in December was larger than when the country entered Delta lockdown in August, McLaughlin said.

Katrina Shanks, a former national MP and now chief executive of Financial Advice New Zealand, has written to Trade and Consumer Affairs Minister David Clark asking for a review of the impact of the legislative changes.

“We went to our members before Christmas and in two days we had 300 examples from our advisers of how someone’s pre-approval had been withdrawn, or where they would have expected someone received a mortgage before, didn’t get it approved at all, or got it approved at a significantly reduced amount, which didn’t work,” she said.

“It should be about vulnerable consumers. That’s who these changes were made for. What he did impacts all of New Zealand and most New Zealanders are not vulnerable,” she said.

Katrina Shanks:


Katrina Shanks: “It’s all about weighing your risk when deciding where to put your hard-earned money.”

“The net has become much too wide. It caught the average New Zealander, who didn’t need extra protection because the responsible lending code was working,” she said.

McLaughlin said the percentage of people in default on their home loans has been declining for years.

Shanks’ decision is the third attempt to bring about a review of the laws.

ACT leader David Seymour has called for an investigation and John Bolton, chief executive of Squirrel Mortgages, has launched a petition in Parliament.

Mortgage broker John Bolton has launched a petition to get the government to rework the most damaging parts of the law and regulation changes.


Mortgage broker John Bolton has launched a petition to get the government to rework the most damaging parts of the law and regulation changes.

“The changes were made to protect vulnerable borrowers from predatory lenders, but cover nearly all loans and will cause significant financial damage,” Bolton said.

The petition closes in mid-February and will be presented to David Seymour on the steps of Parliament, Bolton said.

Seymour said the unintended impacts of changes to the law were another chapter in the long-term trend of New Zealanders spending more time on compliance and less on productive activity.

“A lot of people who could have bought homes and built businesses instead stopped,” Seymour said.

ACT leader David Seymour said the new laws should not cause headaches for ordinary people who live their lives buying homes and setting up businesses.


ACT leader David Seymour said the new laws should not cause headaches for ordinary people who live their lives buying homes and setting up businesses.

Guild said the loss of their pre-approval was a blow to the couple after a year of house hunting, but BNZ reimbursed him and his wife for the cost of attorney fees and building inspections.

The house they were preparing to bid on was only 150 meters from the sea, and although it needed work, Guild had the skills to do it himself, adding immediate equity to the house. .

“It cost $20,000 below what I was going to pay,” he said.

It sold for just over $1 million, or $150,000 less than the loan it was pre-approved for, he said.

The couple had just under a 20% down payment, but they had no debts, no children, and both had well-paying jobs.

They said they were emotionally drained from the experience and unsure when they would likely be able to buy a home, but were working with mortgage adviser Karen Tatterson.

Tatterson said the combination of low deposit lending restrictions and changes to lending law had made it much harder for couples like Guilds, regardless of skill, income and the very low risk of default on a loan.

“They fully qualified. They were pre-approved and ready to go,” she said.

When their pre-approval was cancelled, there was no chance of being able to find a loan from another bank because the processing of applications had slowed down so much, she said.

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