Evolving the CCCFA

BY KIP HANNA

Recent changes to CCCFA legislation are (in my opinion) a step in the right direction - giving advisers the ability to use commercial judgment when assessing discretionary expenses indicated by their clients and excluding them from affordability calculations.

This freedom is beneficial for the industry and home loan borrowers alike as it allows for case-by-case evaluation based on individual circumstances rather than sticking to a checklist of rules.

Additionally, it is encouraging to see a relaxation of Loan to Value Ratios (LVR) by the Reserve Bank, granting lenders greater flexibility in accepting high LVR loans. These changes recognise borrowers can adapt to changing circumstances and continue to service their loan repayments. Borrowers may be spending a certain amount to support their lifestyle at present, but they also have capacity to adjust if necessary.

However, this should be taken a step further by allowing qualified advisers - who have a deep understanding of their clients’ circumstances - to apply a level of commercial judgement to loan applications extending to increased flexibility for change of circumstance considerations, at the time of application or soon after.

Essentially, the CCCFA should be a guide to assist advisers in finding a solution in the best interests of their clients. A personalised approach would consider factors beyond strict test criteria, ensuring that borrowers are protected from unnecessary financial hardship - as an industry now supported by qualifications, advisers possess the necessary skill set to apply their knowledge and safeguard clients effectively.

While welcoming these changes, it’s important to acknowledge transitions take time. As an adviser, it’s crucial to proactively seek a clear understanding from lenders of modified processes and lending criteria, as these can vary. Different lenders have different risk appetites based on their portfolios and growth strategies, and they should have the freedom to decide how they want to implement these changes.

With the exclusion of discretionary spending, advisers can add value by supporting clients in budgeting and forecasting income and expenses and recommending appropriate home loan structures based on the changing interest rate environment.

By taking a long-term view, advisers can help clients identify areas where spending can be reduced, if necessary. It’s concerning to witness more individuals making judgment calls to stop or reduce expenses we consider essential, such as insurance, which is crucial for protecting well-being and financial security.

For many advisers, the previous tightening of CCCFA lending criteria posed challenges in assisting buyers to access finance. Now is the opportune time to review previously declined clients to assess if these changes affect their affordability. Ongoing clients in the approval process and those who have recently submitted applications should also be evaluated for potential flexibility in borrowing amounts.

Looking ahead, if and when debtto-income ratios are introduced by lenders, any impacts should be discussed, and regulations developed in consultation with all market participants. Open dialogue and collaboration will help ensure the industry continues to evolve in a way beneficial for borrowers, lenders, and advisers.

NZHL is a passionately Kiwi, passionately local home loan and insurance network currently helping more than 50,000 New Zealanders collectively save millions of dollars in interest costs every year.

Part of Kiwi Group Capital Ltd (KGC) which are 100% Government owned, NZHL operates with an Independent Board and 70 local business owners nationwide. NZHL believes in helping Kiwis achieve financial freedom, faster and takes a structured, personalised approach to bring this to life. ✚

*Please note – Kip Hanna is the CEO at NZHL and has written this opinion piece based on his experience. This article is intended to be general in nature and should not replace personalised business or career advice.