Preparing to Jump through Hoops for Success

The recent changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and Credit Contracts and Consumer Finance Regulations 2004 (CCCFR) are intended to add security to borrowers by enabling them to make informed choices and ensure that they are able to meet their debts. They also require a greater standard of due diligence by lenders. 

Lenders now have to go through borrowers expenses with a fine-tooth comb to ensure that they are not going to be put in a position of hardship by taking out the loan.  As a result, some borrowers are being denied loans due to their spending habits at Kmart, Uber Eats, daily drinks at the dairy and for their pets vet bills.

Although the New Zealand government initiated the laws to protect potential borrowers, it has unexpectedly made things much more difficult for all, namely first home buyers, small business owners and retirees, who now need to overcome severe scrutiny over spending habits, previous debt and previous high-interest loans in order to secure finance.

While it is quite apparent that these measures are a step too far, and we all hope that a modicum of sense will prevail.  Until then, this is the system in which we must operate for the time being.  This means that the delays arising from this close scrutiny and a higher risk of a rejected application when seeking finance are factors that must be taken into account before committing to a property transaction.

Borrowers need to plan properly and be fully aware of all of their options in order to ensure the right mechanism or safe guard is in place before they commit themselves to a contract.  Proper planning and consideration may include determining how to structure the loan, the vehicle it is sought through i.e. personal, trust, company or partnership etc, the type of lender to go with and what they need to do to be prepared for the application process.  It is now more important than ever to talk to your lawyer, accountant or financial advisor about the options available to you and to explore the risks and advantages of your intended course of action before you embark down that track.  The importance of planning and preparation cannot be underestimated.

Unfortunately, there will be times when applications are rejected.  Although borrowers may find alternative solutions in the face of a delayed or rejected application for finance, it is again, important to seek professional advice on whether that is a sound course of action for you in light of your circumstances.  Professional advisors can often point out unforeseen implications and complications that may arise, and whether your alternative solution will meet your needs in the long term. 

The team at Schnauer and Co can assist you throughout the process and support you in finding the best way to structure your transaction from the outset.  We will tailor our advice to meet your individual circumstances and discuss the options, risks and advantages of each.   If you would like to have a chat about your options on how to best structure your intended property transaction, please give us a call and we can help answer your questions.

Author is Jack Hosking B.A LL.B Lawyer in the Commercial and Property team