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Death by 10,000 paper cuts

The advice industry is undergoing much change, and you could be forgiven if you hadn't noticed what's happening to our brethren - mortgage advisers.

Tuesday, September 7th 2021, 10:19AM 3 Comments

by Jon-Paul Hale

They're going through hell at the moment with the banks' approach to the CCCFA rules.

While some of what the mortgage broking industry is going through may seem benign from our outside view, we have significant requirements on data collection already - what's being asked for is lifting the bar to somewhere between crazy and full potato.

I had the update from Sov Homeloans cross my desk on Monday, which I took a gander at and I was somewhat disturbed by the level of detail that mortgage advisers now have to go to prove a client is not being put into an affordability trap - aka, checking suitability and sustainability.

Now tomato tomatoe, you might say, stay in your lane, maybe.

Yeah, except this crazy thinking and approach is not far from landing on our doorstep from our insurance providers.

I struggle to understand how taking a forensic microscope to a client's situation will help any better than what has been being done.

Primarily when people buy homes, a couple of things happen:
- They completely change their spending habits, as their home now becomes their primary focus and past discretionary spending changes.
- They have some unexpected expense pop up; for me, it's usually a piece of whiteware that needs replacing.

Sure, you want to check on overspending risks with gambling and some character conduct issues that bank statements often show. But drilling into what they spend at the pub, lunch, and all manner of other things that go on will not help the overall picture.

The basics here are:
1. Household income less debt servicing (at a much higher than present test interest rates), and what's leftover is their lifestyle costs.
2. Test that against two things; what we already know and have well established as the cost of living, and do presently. Measured against the net position of the household, are they saving, or are they taking on debt?

The easiest way to establish if someone is living within their means is to measure their debt movement; it speaks volumes.

All of these things are available from what is already being collected.

But they want more; for the 12 months following the drawdown of the loan; food, utilities, rates, transport, ongoing household expenses, childcare, medical and health care, personal care and clothing, public and private education, house, contents and car insurance, life and disability insurance, savings, entertainment and recreation, tithing, and others.

'Other' is a please explain anything else the client spends money on.

Frankly, given the changing circumstances for the client, they have no real idea on this after they have taken possession; it is an unknown for the most part what will change.

Then there is the requirement to discuss the future servicing conversation. Yes, a client at age 45 needs to have a plan on how they pay their 30-year loan after they reach the age of 70.

Sort of goes against the present understanding we have that people are living longer and as a result are also working longer.

This discussion is then bookended with anticipation of decreases in income in the next 12 months. Well, based on the last 18 months, that's going to be a tough conversation. Are people going to be refused mortgages because Covid is disruptive?

And how does an employee anticipate their employer restructuring and laying off staff?

And the poor mortgage adviser gets to suck on the cherry by signing off a CCCFA declaration also signing that they have verified everything on the clients' financial commitments with evidence.

Um, that last bit, that's the lender's job to assess. The mortgage adviser brings it together for the lender to evaluate.

What concerns me with all of this is the corner the mortgage adviser is being painted into. If the client lies about their situation the poor adviser is being hung out to dry by the lender.

The second piece with all of this is that it strengthens the banks' case for taking a harsh line with the client if they default in any way. Because if all of this is ticked off, then they shouldn't be in this position. That's not the intention of the CCCFA.

The idea behind the CCCFA is to improve lending standards to minimise clients in hardship situations while compelling lenders to work with clients to meet their obligations.

It may be somewhat cynical, but I'm not feeling the love from the banks on their intent behind CCCFA. And this is all banks, not just the one I've mentioned.

Sadly crap happens, and we see clients land in awful situations through circumstance, conditions that they have no control of, yet the banks are structuring things to kick them while they are down if it happens to them.

I fear the slippery slope is coming with CoFI, where the FMA is saying that providers need to understand what their intermediaries are doing.

They will stretch that inch over a mile and see it as an ability to overreach with oversight on what we do.

So yes, my observations and epistle on what's happening in the office next door are relevant to us, and it will become yet another challenge we need to manage as the new rules progress.

The provider's role is to manufacture good products for consumers and teach advisers how they work and how they are intended to apply.

The adviser's role is to determine which products are or are not suitable for a given client's situation and educate the client on those choices so they can make a good decision on what they need.

And the three parties work together for a workable solution.

I appreciate that sounds somewhat idealistic and naive; however, we have new rules, and we need to road test them before we get carried away with the big guys stomping on the rest of us to try and dominate where they shouldn't be.

What's happening to mortgage advisers is coming for us and we as advisers need to push back on what is unreasonable over-reach to control our businesses when they do.

That independence is why most of us do what we do under the structures we have, so we get to have control over what we do.

Tags: banks CCCFA CoFI Insurance Advisers Jon-Paul Hale Mortgage Advisers Opinion

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Comments from our readers

On 7 September 2021 at 11:53 am JPHale said:
Since penning this I have termed the new rules as a forensic financial colonoscopy.

And clients are going to be none too happy about it, especially in the present environment with financial impacts being felt everywhere.
On 7 September 2021 at 1:38 pm gavin austin adviser business compliance said:
Great comments JP. The banks are also asking questions around KiwiSaver. From memory its - Do you have KiwiSaver Y/N If yes who with? Whats it's value and what % are you paying into it. It's the if yes who's it with question I have some issues with. What do others think?
On 15 September 2021 at 4:06 pm Rob T said:
Totally agree. In over 20 years and possibly thousands of budget conversations I've found that the vast majority of my clients simply pay their bills and spend the rest. Which doesn't mean they can't spend less if they have to. As Justice Perram ruled in ASIC vs Westpac "I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare,"

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Lender Flt 1yr 2yr 3yr
AIA 5.95 4.85 5.35 5.65
ANZ 5.94 ▲5.95 ▲6.40 ▲6.59
ANZ Blueprint to Build - - - -
ANZ Special - ▲5.35 ▲5.80 ▲5.99
ASB Bank 5.85 ▲5.35 ▲5.80 ▲5.99
Avanti Finance 5.95 - - -
Basecorp Finance 6.95 - - -
Bluestone 5.89 7.49 8.09 8.19
BNZ - Classic - ▲5.35 ▲5.69 ▲5.99
BNZ - Mortgage One 5.94 - - -
BNZ - Rapid Repay 5.94 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.94 ▲5.95 ▲6.29 ▲6.59
BNZ - TotalMoney 5.94 - - -
CFML Loans 6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Co-operative Bank - First Home Special - 4.75 - -
Co-operative Bank - Owner Occ 5.85 4.85 5.35 5.65
Co-operative Bank - Standard 5.85 5.35 5.85 6.15
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.95 5.45 -
Heartland Bank - Online 4.10 ▲4.40 ▲4.90 ▲5.10
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 6.10 5.00 5.75 -
HSBC Premier 5.89 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.25 4.39 5.09 5.45
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 5.50 ▲6.19 ▲6.69 ▲6.79
Kiwibank - Offset 5.50 - - -
Kiwibank Special 5.00 ▲5.19 ▲5.69 ▲5.89
Liberty 4.84 - - -
Lender Flt 1yr 2yr 3yr
Nelson Building Society 6.45 ▲5.55 ▲6.15 -
Pepper Money 4.49 - - -
Resimac 6.19 5.60 6.16 6.29
SBS Bank 5.79 5.05 5.69 5.89
SBS Bank Special - 4.55 5.19 5.39
Select Home Loans 4.09 4.29 4.86 5.09
TSB Bank - ▲5.65 5.79 ▲6.45
TSB Special ▲4.89 ▲4.85 4.99 ▲5.65
Unity 5.65 4.95 5.55 -
Wairarapa Building Society 5.74 4.95 5.75 -
Westpac 5.94 ▲5.95 ▲6.29 ▲6.59
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.94 - - -
Westpac Special - ▲5.35 ▲5.69 ▲5.99
Median 5.85 5.05 5.69 5.99

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