The early stages of 2022 have been hard going in most parts of the finance and property world. Rising interest rates, the CCCFA (Credit Contracts and Consumer Finance Act) and less over-80% lending have combined to make credit conditions much more challenging. Things are settling down now as the banks, brokers and borrowers adjust to the changes, but a number of lenders have experienced 20%–30% drops in new applications, which is huge. The property market has taken a hit and the FOMO of last year is not being replaced with FOOP (fear of overpaying).
Before we get into the juicy stuff, we’d like to announce our annual Referral Competition, which runs from today through until 30 August 2022, with the winner receiving $1,000 in vouchers. You get an entry if you:
- Refer anyone to Saving Kiwis for a new mortgage, refinance, top-up or refix.
- Use our service for a new mortgage, refinance, top-up or refix.
You can have more than one entry, so keep those referrals coming.
Property Market and the CCCFA
The property market has felt the pinch with nationwide prices dropping 2.8% in the March quarter and Auckland down 4.5%. Sales are down 33% nationwide and 26% in Auckland compared to the same time last year. Average days to sell a property was 36 compared to 28 last year, so the heat has really been taken out of the market and buyer sentiment has become much more patient. Nice to be in a buyers’ market at last!
There has been much media coverage of the CCCFA as the main culprit in the drop-off in lending, but this has been overstated, as the key drivers have been:
- Interest rates increasing from the mid-2s to around 5%
- Banks assessment/servicing rates increasing – this has reduced maximum borrowings by around 10%
- The Reserve Bank (RBNZ) reducing over-80% lending from 20% to 10% of all lending – that’s a 50% reduction. A big hit to the first home buyer market.
Don’t get me wrong – while the CCCFA is a poor piece of regulation in terms of bank lending, it has been very effective at cleaning up bad practices in the small loans space. The CCCFA requires an in-
depth look into current and future spending and was written to target loan sharks who were putting borrowers into loans they could not repay.
The application of the CCCFA to the banking sector was unnecessary, as banks already have excellent assessment processes. The regulations associated with the CCCFA require what has amounted to a
forensic investigation into every bank account and credit card, and explanations needed for every expense payment. This extra burden, on a system which has already seen huge changes in the last couple of years, has created an incredibly frustrating and time-consuming situation for little or no improvement in credit quality.
Fortunately, the government has eased back on the CCCFA expectations with the banks. So, while the CCCFA is still a factor in the assessment process, it’s not nearly as problematic as it was in the early months. Back to property prices. There is an expectation that prices will fall slightly, or go sideways, for 2–3 years. Those predicting a crash or significant correction will likely be wrong again, as there will be a lot of price support due to soaring building costs, rising rents and concerns about other asset classes such as shares. House prices have proven to be resilient in New Zealand and are likely to remain so.
Inflation and Interest Rates
Inflation is running at close to 7%, which is eye-watering when the Reserve RBNZ has a target range of 1–3%.
Much of this is due to Covid, then add in skyrocketing fuel, food and construction costs, our weakening dollar (meaning things from overseas become more expensive), as well as some local changes like the increase in the minimum wage, which will inevitably force businesses to increase prices. It’s not a great outlook, so it appears this inflation won’t be a short-run thing.
Now the RBNZ has the difficult job of controlling inflation by increasing interest rates, but it can’t run the risk of going too high; otherwise, the debt servicing burden will cripple an economy that is still recovering from the Covid lockdowns. It’s set to be a very difficult couple of years for some, that’s for sure.
Banks are moving more and more to refixing on-line, which is making life much easier and saving paperwork for everyone. However, many borrowers are making mistakes with their term solution, so make sure you’re tapping into our expertise before making any big decisions. Please always call or email to confirm:
- You’ve been offered the best rate.
- You’re selecting the best term for your needs.
From the Saving Kiwis office
Despite all the challenges in the lending, we’ve been run off our feet keeping up with demand. We’ve brought in a new Mortgage Assistant, Deb, to help ensure everything’s getting processed as
quickly as possible. Welcome to the Saving Kiwis team Deb, it’s great to have you on board!
Don’t forget our Referral Competition. Hopefully, you can be the winner of the $1,000!
(09) 5353 620 0274 404 230