House-hunters and other borrowers may have to wait longer for a loan

Borrowers may find it takes longer to get a loan approval under changes to the consumer finance law. Photo / File

Borrowers may soon have to wait longer for a loan approval and face more questions under changes being made to consumer finance law.

Under the Credit Contracts and Consumer Finance Act lenders already have to be satisfied the person borrowing from them can make the repayments without suffering substantial financial hardship.

But from December they will have to provide records of all their inquiries, including their assessment of why they were satisfied the loan was both suitable and affordable.

Banking Ombudsman Nicola Sladden said the changes could mean some loans which might have got over the line in the past were not approved and warned the application process could take longer.

"Lending applications will be more comprehensive and are likely to take longer, so we encourage you to plan ahead."

Sladden said she expected to see a rise in complaints and inquiries as a result of the change.

"There can be a fine balance between customer protection and convenience."

The Banking Ombudsman scheme recently received a complaint from a man who was concerned about his bank's lending decisions.

The man had found a property he was eager to buy and sought a bank's approval for a loan for the auction which was due to be held in three days' time.

Unfortunately, the man did not have all the information the bank required and when he asked the bank to give him conditional approval so he could bid on the day they turned him down.

The scheme found the bank acted fairly despite the tight deadline to consider the loan request.

Sladden said last-minute approvals were even less likely to get through under the law change.

"If you're house-hunting, get in early and find out from the bank what you need to do to prepare."

Banking Ombudsman Nicola Sladden. Photo / File

Sladden said lenders may require more information to assess whether loans are affordable, including recent and reliable evidence of income (including any foreseeable change to income), debts and expenses.

She said the changes applied to small loans, changes to existing loans, or credit limit increases.

"From December it is explicit that all lenders are expected to carry out full affordability assessments even for a simple credit limit top-up."

Sladden said the changes would help protect consumers from unaffordable debt including some credit card lending practices of the past such as one case in which a woman who earned $27k on ACC had been able to receive a $24k credit limit increase in 2016.

"The new requirements will help to ensure all lenders do a comprehensive job of understanding their customers' circumstances before approving a loan."

Sladden urged borrowers to allow plenty of time to work through the lending process with their bank and to be patient.

"Remember banks are not allowed to provide lending unless they follow this process."

Borrowers should also be prepared by asking their bank what they needed and gathering all recent information about their income, debts and expenses.

"Be clear about your reason for the loan, and the amount you need and why."