HOW THE NEW LENDING LAWS CAN PROVE DIFFICULT FOR BORROWERS? A CLOSE STUDY

Do you know what was baking in New Zealand Market last December? Nope, it’s not only the Christmas cake rather the new CCCFA law. Yes, you read it right. The amendments in the CCCFA legislation have thrown a wave of challenges on the Banks and the lenders.  With the execution of the law on December 1^st, 2021, the Commerce and Consumer Affairs Minister Mr. David Clark stated that the legislation is enforced to safeguard kiwis against unfair lenders. However, his statement couldn’t satisfy some critics. Let’s discuss in detail this legislation and its impact on the New Zealand market in this blog.

A quick glance at the CCCFA law

Before delving deep into the law’s impact on markets or individuals, you need to first understand the purpose with which the New Zealand govt had decided to enforce this credit law. Back in 2017, the labour-led government had disputed over amendments in credit law to ensure that the borrowers can afford availing loans. However, despite govt’s wise intention concerning this legislation, the lending industry is unsure about its positive impact on the New Zealand market.

You must be wondering as to the major reason for the lender’s disagreement. Basically, the legislation expects a lender to be more responsible while finalising an agreement on loan terms, repayment period, interest, etc. It safeguards borrowers when

• Borrowing money over an agreed overdraft
• Making purchases on credit
• Availing mortgage or a loan
• Using a credit card

Impact of the new credit law on the borrowers

Although the NZ government initiated the law to protect borrowers, however, things are taking an awry turn as borrowers especially the first home buyers, small business owners as well as retired people have to face issues. The stricter the lending laws the more difficult it is for the borrowers. Here’s a list of challenges a borrower must face as a result of the new Credit Contracts and Consumer Finance Act.

• One of the biggest challenges a borrower has to face while applying for a loan is offering detail of their spending behaviour to their lender. If you are one of those who are facing issues due to this law then consult a mortgage broker who can assist you determining your spending pattern.
• The first home buyers after the enforcement of this law can find it complex to get a mortgage without much hassle. In case the buyer has a previous record of debt or has an issue-ridden credit report, the chances of a mortgage approval seem impossible. Furthermore, individuals or couples with meagre income will be unable to secure loans as banks or lenders will strictly scrutinize their financial condition.
• The retired folks are perhaps another section of people who will come under the scanner of the law. Credit laws have made it compulsory for lenders to properly check the loan repayment affordability of the beneficiaries. As a result of strictness from lenders borrowers who belong to the retirement age group might undergo confusion as the lenders want them to offer a proper exit strategy. Retirees have to provide enough proof that they can service a loan during retirement.

Strategies to tackle the law effectively

It seems borrowing has turned challenging with the new legislation which was supposed to meant fruitful for the borrowers. Well, certain critics have filed petitions against it, however, it’s still uncertain whether or not the law will be abolished. Hence, some of the market experts have suggested tips that can help borrowers to cope up with the grim circumstances due to the credit law.

Debt with high interest to be avoided

It is often found that loans on cars or any expensive commodities require you to pay high interest, and that somehow reduces borrowing capacity. When you have to pay high interest, it can put an adverse impact on your credit score hence you should avoid taking high-interest debt to get quick approval for a loan.

Start early in the buying process

Assessment processes of lending are becoming more time-consuming with this legislation hence it’s better to start early if you wish to buy your first dream home without any complications. If a home buyer keeps procedures associated with home-buying for the last minute, then as per the stringent regulation, they might end up waiting longer to move into their new space.

Gain insight into new regulations

Credit laws amendment might sound intimidating for both lenders as well as borrowers. To avoid any untoward situation, borrowers should know about the implications of the law before they take the first step. Ask a mortgage broker to brief you about the regulations so that your first step to borrowing can be free from any confusion.

With the changing legislations mortgage borrowers have to face confusion and difficulties in meeting the requirements of securing a loan. Well, the mortgage brokers have profound knowledge of the amendment made into the legislation and how to handle the paperwork and related specifications in a simplified manner so you can take their guidance.