The new Credit Contracts and Consumer Finance Act (CCCFA) came into effect on Dec 1 2021 with a vision to protect vulnerable borrowers. This has shaken up the housing market, spooking borrowers and making banks more tentative in their lending. The act has increased analysis on customer expenses, causing numerous sensationalized headlines about that extra Coffee or Kmart trip sinking a person’s loan application.
6 months on, after public backlash, a full review by the government, some proposed changes, and as it turns out not much change at all – we find ourselves operating in an even larger grey space than before the changes took effect.
One confirmed change was contributions to your Savings account do not need to be treated as an expense – commonsense prevails!
According to ANZ’s latest interpretation of the confirmed changes, the rules still don’t allow them to differentiate between basic necessities and discretionary items if the spending on these are regular – in short, they both continue to be included as an expense, which ultimately reduces your overall affordability.
However, banks are all approaching the CCCFA changes differently as their interpretations of what’s required under the rules are not the same.
What does this mean as a borrower?
Many buyers who were previously blocked from applying due to CCCFA policies could now find themselves within borrowing capability. If your application was deferred in some way in the past six months, you still need to show how you will control your spending in the future, however, I’d encourage you to now consider reassessing if you can purchase a property as you may find your fortunes have changed!
It’s more important than ever to engage a mortgage adviser to help you get you the best outcome for your home loan application.
As a mortgage adviser, I know which banks are taking a more relaxed approach towards expense analysis – I’m working with all of them every day. Save yourself the hassle of trying to figure it all out yourself. I know which bank is going to be best suited for you.
What preparation can I do to best prepare myself for a home loan application?
Tidy up your bank statements. Banks look at your last 3 months bank statements. So if you’re planning ahead:
- Cut back on discretionary spending where possible. Defer that shopping spree or big night out as it could have a positive impact on your borrowing capacity.
- Consider changing the payment frequency on anything subscription based (e.g gym membership) to a semi annual amount so that it does not show as “regular” in your last 3 months statements.
- Get into the habit of regular savings. A good history of saving shows the bank that you have surplus income each month which could go towards servicing a mortgage. This will also increase your deposit which is a bonus!
- Avoid taking on Credit Card, Overdraft, and Buy Now Pay Later facilities – these create added expenses in the bank’s affordability calculators.
- Try to avoid any unarranged Overdrafts or dishonoured payments. These are red flags for the banks.
Getting your finance in order before you start looking too seriously at properties to purchase will give you a huge advantage when it comes to price negotiations. Vendors want certainty, and are starting to accept lower offers as a trade off for that certainty.
I’d love to help you with your next move – let’s start the planning now!
Grant Stephens
Mortgage Adviser
Personalised Mortgages
