I hope YOU are not wearing the "unintended results" of this NCCP change.....

[Kohinoor]

Hi all,

Life goes on, and I learn more and more each day - right now, on the financial side of things, not a lot is good news - especially this bit :-

http://www.australiancentre.com.au/unintended-consequences-of-responsible-lending-under-the-nccp-may-reduce-the-availability-of-credit-to-some-borrowers/

Yeah, I heard it was coming in (Jan of 2011), but had yet to learn just how INSIDIOUS this particular piece of Legislation was, or how many lives could be turned on their heads. (Count mine, my wife's, and my son in that group - but I am SURE we are not alone, hence this post)

Just in the last month, I heard this from "the horse's mouth" when my Bank affirmed "Two years ago, our lending decisions were 70% Equity based - these days, they are 90% Serviceability based".

Nice for warning me in advance, guys !! Or even "after the fact", thus allowing me to prepare better.....

the lender or broker must assess whether the consumer has the capacity to repay the credit contract without ‘substantial hardship’. A credit contract will be deemed unsuitable if, at the time of the assessment, it is likely that the consumer will be unable to make repayments or only be able to comply with the contract with ‘substantial hardship’.

See, for the previous 10 years, I got to decide what "hardship" for me was. The fact that I chose to put 50% (or more) of my wage into accruing Investment Properties was MY business.

Now, suddenly, it seems our esteemed Fed Govt decides for us, via this legislation !! And, despite me being willing to set aside my "savings" in Equity, and to be able to choose what/when I sell property to suit MY needs, now someone else is calling the shots, and I am being forced to "sell up" - simply because I am not able to meet these new parameters that have been legislated by this Lafbor Govt.

Here are a couple of quotes from that link that just SCREAM the alarm :-

Third, an assessment should be made as to whether the credit contract is ‘not unsuitable’ for the consumer.
While the first two steps are not dissimilar to current practice, it is this third step that presents some challenge for lenders and could effectively see some borrowers precluded from being granted finance, an outcome which is either good policy or perhaps an unintended consequence.

BTW, "not unsuitable", after removing the double negative, means "suitable". So, they are really saying "Is the Credit Contract suitable". In my case, I have always negated the need for Consumer Credit protection, as my intent was to use more of my wage to build wealth at my call. Doesn't help much now though, as it seems that NO-ONE can now step outside those bounds !!! Banks are falling over themselves to comply with this in ALL cases !!

Double negatives aside, having to fund a loan out of cash flow may construe a significant impediment for potential borrowers who are relatively close to nominal retirement age. An older borrower who is seeking a 30 year loan in order to keep repayment commitments at the lowest possible level, would arguably need to display capacity to service the loan for the full term in order for it to be deemed ‘not unsuitable’. An argument that the property could be sold at a later time when the retiree elects to downsize and thereby repay the loan may not be adequate under responsible lending. Consequently, potential borrowers in their 50s may be precluded from borrowing if they need a loan term of greater than, say 15 years, in order to qualify.

OK, so, in essence, lenders are now FORCED to apply lending rules that take away any entrepreneurial possibilities. Welcome to the "nanny state" under Labor !!

.... but wait - it gets worse !!

The final area where there may well be issues to address is with respect to reverse mortgages.

Under the definition of responsible lending in the NCCP, reverse mortgages – where no repayments are made – may be outcast. For retired people who are asset rich and income poor, reverse mortgages present one of the few mechanisms that allows them to access the equity value of their homes to support their quality of life in their later years.

With the recent setback in superannuation returns, many self-funded retirees are struggling to make ends meet and may soon need to access some of their home equity – without this product they can’t. While reverse mortgages are yet to be addressed in phase 2 of the new consumer credit laws, responsible lending provisions put this type of product in jeopardy.

Do YOU know someone (your Grandies?) who are "asset rich but cash poor? There are HEAPS of them out there !! Sorry Gramps - all bets may be OFF !!

If you, too, are retired, about to, or approaching retirement age, (say, ten years away ) you may also be finding it harder to raise funding for your investments.

Welcome to "the new world" where Govt dictates everything for you. They can't trust you to make decisions for yourself, now can they?


This legislation has already cost me heaps, and likely to cost me heaps more !! The really strange thing is, that with me being "forced" to sell property at an inappropriate time, any Capital Gains Tax is lowered too, thus the Govt also misses out on the extra.

But then, they WILL get that smaller amount in THEIR current term - is that their intent? If so, they look like succeeding - at my considerable cost !!

Thanks for NOTHING, Lafbor !!!

Koh

PS One of the replies to the linked article said it for me :-

This new law is an ass and needs to be carefully reexamined to reduce the unintended consequences, while maintaining its intended purpose of preventing people from over committing to credit.

[Riss]

Hi Koh,

I completely understand where you are coming from as I get we all have our "model of the world" view point. I would like to share mine too

I work in Finance, in business that deals directly with customers facing financial hardship across consumer and business portfolio. The changes to the NCCP from my perspective prove to benefit those customers who are in hardship, and those 'at risk' or 'high risk' customers.

I think the NCCP from what you have said appears to have a much larger weighting in favour of impacting the Australians who have suffered and who have the potential to suffer financially in the future. I'm no economist, but the stats that I am exposed to in my business conveys that Australia (the people) has most definitely shifted it's focus from 'spend' to 'save'. I think the NCCP is forcing our customers to really dig deep and assess whether they can really commit to the debt. With Unemployment and "under-employement' quite prevalent post GFC, in addition to funding costs sky high, the banks cannot afford to lend out money with the criteria of the past.

We no longer make money from Mortgages and the interest charged, this is no longer sustainable for the banks. We now need to sustain ourselves via hard cash deposits by customers. I think the NCCP is definitely aimed at the financial/consumer trending of Australia's society, because I think that is whats hurting the economy and the banks the most? I guess, hence the wealthier lot don't reap the benefits as far as NCCP goes.

Of course, again I'm no economist, this is merely a point of view.

Cheers,
Carissa =)

[Kohinoor]

Hi Riss,

Thanks for responding. You are right - we all do have our own particular view, based on our own life experiences. And, all views have their own inherent validity.

It is certainly a complex subject, and, as with any such change, the chance of "collateral damage" can be quite high, depending on the thought that goes into planning the change.

My particular view is that such a massive change should have been wheeled out S-L-O-W-L-Y, to allow all to get used to the new situation, and plan to change to suit it. The sudden change (with some areas of those changes not too well thought out) is what has impacted me, and (likely) many thousands of others.

We no longer make money from Mortgages and the interest charged,

Well, that is interesting !! To the average Joe, who sees the lenders' margins skyrocketting from about 1.3% above RBA's cash rate 7 years ago, to the present 2.8% above, or thereabouts, how could that be so?

Since you work within the industry you are much better placed to know the realities, and I do accept your point that it IS so - but the average Joe (me) still scratches his head.... We wonder where the big four banks make those ever-increasing billions of profit each year if not from interest ???

The changes to the NCCP from my perspective prove to benefit those customers who are in hardship, and those 'at risk' or 'high risk' customers.

It's a nice thought - and good luck to all who do benefit. Others, though, seem caught in the cross-fire....

Koh