Tough new lending rules - The impact on first home buyers and small business owners
Posted on 24 Feb 2022
Changes to the CCCFA (Credit Contracts and Consumer Finance Act) and rising mortgage rates have made it harder for first home buyers to get a loan from the bank. A lot of changes have happened at the same time as the CCCFA changes, including increase to the OCR, LVR changes, an increase in house prices and local government rates. The tighter lending criteria included a reduction in the availability of low deposit mortgages. Since November 1, banks have been required to lend no more than 10 per cent of new loans to people with a deposit of less than 20 per cent. The 1st of December 2021 marked the start of the CCCFA's more stringent lending criteria. Lenders are asking for more information, and you may not be able to borrow in the same way you've been used to. Applications are taking longer as lenders are required (by law) to assess whether you can afford to top-up your credit or borrow. Things like whether your income exceeds your expenses, is borrowing the right solution for you and are you actually able to repay the loan, all come into consideration. These changes are supposed to make borrowing safer and protect both the lender and the borrower. Impact: These changes have meant fewer younger people, self-employed and people over 50 were qualifying for mortgages. For those wanting to buy an existing property, at least a 20 per cent deposit is required. New build properties can be funded with lower deposits. There is also the Government's First Home Grant that could be considered. Economist Tony Alexander shares his 4 tips for first-home buyers in this article here: https://www.rnz.co.nz/news/business/459734/would-be-homeowners-face-banks-pulling-pre-approvals For Small Business owners who would look to use their home as security for a small business loan, there are a few ways to protect yourself so you don't lose your home completely.? One is to consider putting your large assets, such as your home, into a family trust. However, it's not something to be done lightly. The rules around trusts are more complex than they used to be and they need real commitment to be done properly. We are specialists in this area and can help you with this, so let us know if you're considering this option. The alternatives? Non-bank lenders may have higher interest rates but could be an option. If possible, the 'bank of mum and dad' could be an option for some. If you are a parent considering loaning or gifting money to your children, please let us know as we can advise you on any tax implications you may be liable to. During 2022 and 2023 you can apply for the Small Business Cashflow Loan Scheme. Read more about this on our blog. For more information and tips, this article from Sorted summarises the facts nicely. To discuss these matters further specific to your situation, please get in touch with your usual Monteck Carter contact. We're happy to help.
