Legal and regulatory update for the life and health insurance sector - Responsible Lending Code focus

For life insurers that have been very concerned that the responsible lending code may have been contributing to a recent lapse spike due to loan applicants cutting expenditure to try and meet tough surplus requirements the changes below may be welcomed, as well as by mortgage lenders and many first home buyers. Grateful thanks to Katrina Shanks for this synopsis from her recent update email:

The proposed initial changes to the regulations and Responsible Lending Code, agreed to by Cabinet, are: 

 - Removing regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into when assessing the borrower's future expenses.
 - Clarifying that when borrowers provide a detailed breakdown of their future living expenses, and these are bench-marked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions.
 - Clarifying that where lenders choose to estimate future expenses from recent bank transaction records, they are permitted to obtaining information about how their current expenses are likely to change once the contract is entered into.
 - Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records.
 - Providing further guidance on when a lender needs to allow for a ‘reasonable surplus’ (the amount left over when the borrower’s estimated expenses are subtracted from their income) and how lenders should set surplus requirements.
 - Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required. 

Although some feel that the responsible lending code was helping to damp down demand in an expensive market it is my belief that we have a fundamental problem with supply of housing, so these changes are likely to be neutral in terms of demand.