The changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) announced by the Government earlier in June 2022, are due to come into force from July 7, 2022, with amendments to how lenders are required to assess affordability and more clarity around investments and savings as outgoings.
Since its introduction in December 2021, the rules have been blamed for making it harder for eligible borrowers to get home loan approval, with greater scrutiny and emphasis on expenditure effectively locking out of the property market a large chunk of would-be homeowners.
Designed to protect borrowers from predatory and irresponsible lending, those in the industry claim the regulations prompted lenders to become ultra-conservative, forced into declining loans they would previously have made. Since the existing Responsible Lending Code took effect, annual growth in lending for housing has declined from 11 per cent in November 2021 to 8.1 per cent in April 2022.
The new changes include the removal of regular savings and investments from the definition of expenses. A “reasonable surplus” will no longer be required if a lender applied adequate buffers and adjustments to income and outgoings.
Other changes include guidance for when it was “obvious” that a loan was affordable, and clarity that when borrowers provide a detailed breakdown of expenditure, there is no need to inquire into current living expenses from recent bank transactions.
It’s important to note that much of the existing requirements for borrowers still remain in place, in that borrowers will still be required to show detailed information about income and expenditure when applying for loans.
As always, it’s worthwhile seeking expert advice from those in the know, working with a Mortgage Express branded mortgage adviser who understands the current market and lending criteria, and can provide guidance and clarity every step of the way.