What Is The CCCFA And How Does It Impact My Ability To Borrow?
Certainly, big news over the past few months, is the CCCFA – the Credit Contracts and Consumer Finance Act (2003).
The Act was originally introduced in 2003 but updates that came into force of late captured how banks assessed mortgage applications and all of a sudden things got more than a little difficult.
The last update to the CCCFA came into effect on December 1st, 2021 and was intended to better protect borrowers.
What Does The Act Require?
The Act requires lenders to apply more scrutiny than ever to borrower affordability. That meant borrowers had to provide more detail and evidence around their spending, as well as their income when they applied for loans.
There has always been an assessment of income and expenditure in every mortgage application.
Hard-wired expenses, such as other debt payments, childcare and insurance have always been factored in, but general living costs weren’t overly itemised.
Instead, lenders used benchmark numbers for typical living costs (food, clothing etc) for adults and dependants and unless spending shown through bank statements was extraordinary then those benchmarks could be used.
Every Spend Is Considered
Under the CCCFA, every spend is considered and calculated and yes that means discretionary spending on things like Netflix and takeaways had to be factored in and some banks really did go to town on their scrutiny.
A couple of them brought in software to analyse the statements and categorise them and therefore nothing was missed.
Consequently, the demands on potential borrowers to provide screeds of information, the delays in processing times and a myriad of stories hitting the press about how daft some of the requirements were, have seen the government put in place a review of the amendments.
For us at the Mortgage Supply Co, there was of course impact but we worked with it and we had options.
What Does This Mean For You?
Firstly, when banks implemented change, they all did so slightly different and those that implanted to the harshest degree became a less favourable option. Secondly, we knew the rules and we knew how best to work with them.
The Act is concerned with the main around ongoing affordability and suitability for a loan.
What expenses could be seen in bank statements was actually less important than what expenses were expected in the future.
We Did Our Own Analysis
So we did our own analysis of a client’s statements, identified those that were hard-wired and needed to be included and then went to work on discretionary spending.
A good conversation with the client, some understanding and agreement on what was reasonable spending going forwards and we had a case to present on what affordability really looked like.
This approach saw us and our clients get good outcomes in recent times.
After all, no one is going to default on their mortgage because of Netflix, are they?
David Windler
Financial Adviser and Mortgage Broker
Director The Mortgage Supply Company