Lending, Legislation, and a First-Home Buyer walk into a bar…
There’s no punchline for kiwi First-Home-Buyers with the lastest change of lending legislation. Just another punch-in-gut, with a few kick-me-while-I’m down sucker punches to follow!
Of late, New Zealand has experienced a tonne of legislative changes. For those of us in the lending world, most of this legislation is making less and less sense and creating more and more problems.
John Bolton is right
This week in his article on Stuff – “Mortgage decline rates set to skyrocket as responsible lending changes bite”, John said out-loud many of the things we in the finance industry are all thinking!
“The problem with the CCCFA legislation is that it is designed for high-risk consumer finance lending and dealing with finance companies, but it covers everything including mortgages. It is poorly designed and feels as though it’s been bulldozed through without proper consideration or genuinely listening to market feedback. It will fail homeowners and has serious unintended consequences”
The host of changes being forced on banks at the moment is changing the world of lending, and not for the better.
Legislation that is unplanned, not well-thought-out, and lacking in industry consultation will impact every single New Zealander.
“Our laws are increasingly being made with great ideals in mind but no grounding in practical realities. Legislation that treats a mortgage the same as a high-cost payday loan is clearly problematic and yet it is happening” ~ John Bolton
Responsible lending and small business NZ
Most small kiwi businesses gain capital by leveraging the capital in their home.
Gaining cheap, accessible capital will now be limited, making it much more difficult to grow your business and to take on new employees. The #adviseradvantage can help you navigate this new landscape. Get some free advice and instruction on other capital options. You do have other options and we can help you explore them and determine which ones are the best options for your world.
Mum and Dad will be impacted
For many years Mums and Dads have been able to access cheap funds to tidy up their consumer debt (often called: debt consolidation).
Maybe you’ve clocked up 10, 20 or 30K in consumer related credit card or store card debt. That debts sitting on interest rates anywhere from 13% – 22%. Consolidating all that debt against your home on rates as low as 4% is just smart!
“Responsible lending” means, being able to sort your debts just became so much harder. And that’s not making things better.
Our recent industry tidy-up meant money sharks have been reigned-in, but the banks needed need reigning in here. They were never a problem in the first place. Banks are already operating responsibly with great checks and balances in place to prevent customers from over-extending themselves. Banks didn’t need more bureaucracy placed on them.
Here’s hoping our politicians reign things back here fast.
First-Home-Buyers – again!
Most affected yet again are our First-Home-Buyers.
This section of our population should be getting the most amount of assistance, yet with every new legislative change, they just keep being pushed further and further out of the market.
They should have been excluded from these responsible lending changes completely.
Why First-Home-Buyers are a great investment
Generally our First-Home-Buyers are younger:
- They will have 40-50 years to pay back that home loan debt
- That immediately lessons the lending risk
And between 20-70 years our incomes increase:
- We’re developing skills, trades, degrees, growing businesses, investing in NZ as a whole
- That’s years and years of less risk.
If we want to continue to create a cohesive society, providing homes for the next generation of tax payers is the first and most critical step.
Make the homeownership lending rules for First-Home-Buyers easier not harder. They don’t want a hand-out, but a hand-up. And that’s far kinder than another kick-in-ass. Our First-Home-Buyers just need a fair playing field so they can get into the game!
Bring back 5% home deposits for First-Home-Buyers
Six thousand years ago when I first started in banking, we were doing 95% home loans.
Those homeowners have gone on to create large wealth for New Zealand over the years. A 5% deposit was achievable for them and the risk was nothing to the bank.
Sure, multiple property situations are different – but I’m primarily talking about a group of our population that just need a chance at that first foot-hold on the property ladder.
Bring back 5% home deposits for First-Home-Buyers with a guarantee from the government back to the bank! It costs nobody anything, because the amount of loans that would fall over would be negligible. People fight tooth and nail to keep their homes!
There is hope
If I was a betting man, I’d put a very large bet on the fact that it won’t be this way forever, and that like our Aussie mates, we’ll realise the myriad of changes have gone too far, negatively impacting our population, resulting in a pull back in the coming year (much like the 90% DHB target rates!)
But in the meantime, if you’re looking at borrowing give us a call.
Our advisers will help you make smarter decisions. We’re immersed in this world, and we’re here to make sure you’re not tripped up by any of the recent changes.
That’s the #adviseradvantage.
Just prior to posting the IRD have announced their intention to advise a change to the tax law after the introduction of the bright-line test created the very barriers discussed above for parents helping their children into homes. Aimed at specifically addressing the tax liability for the parents and the restarting of the bright-line test period at 10 years again, the amendment would recommend the test resets only on the proportion of the property that transferred ownership rather than the whole property.
Yes, you’d be saving a considerable amount of dollars, but the reality is, if you can help your children, waiting the full 10 years before you make changes to your ownership structure is the only way to fully avoid this tax pain.
Our Finance articles are courtesy of our Managing Director – Lincoln Davie