What is the NCCP Act
The National Consumer Credit Protection Act or NCCP for short is legislation designed to protect consumers & ensure ethical & professional standards in the finance industry through the National Credit Code (NCC).
The act is regulated & enforced by ASIC. A major part of the act is that all lenders & mortgage brokers are required to hold a credit license or be registered as an authorised credit representative.
The process of applying for a loan
When you apply for your loan with a mortgage broker, they will follow a specific process set out in the Act.
- Make enquiries: Your mortgage brokers must make reasonable enquiries into your financial position, requirements & objectives.
- Verification: Your mortgage broker must take reasonable steps to verify your financial position.
- Preliminary assessment: From the information gathered from steps ones and two, your broker must make a preliminary assessment as to which loan(s) are appropriate or not before recommending them to you.
Can’t you just tell me which lender is best?
We commonly receive requests from people who would like to know the lender and the interest rate before we have gone through the first two steps properly. It simply isn’t possible for us to do our job properly without knowing your full situation and seeing your supporting documents.
This is firstly because it is against the NCCP Act for us to recommend a product without making enquiries and verifying your information, but secondly because we can’t possibly give you accurate advice without this information. There are literally hundreds of different credit policies which can affect the outcome of your application, many of which are counter intuitive or have very little to do with common sense!
Imagine a builder trying to give you a quote to build a house without knowing how big it is? Applying for a home loan is a complicated process and if we do not complete a preliminary assessment correctly then you risk having your loan declined or missing out on the cheapest loan products.
Can you give me an indicative interest rate?
Yes, we can give you an indicative interest rate & details of likely lender fees. Normally we will give you a range as we do not know which lenders you qualify for a loan with.
Which home loans are regulated?
As a general rule almost all home loan types & applications are regulated under the act. The rules for this are complicated, however as a general rule a loan will be regulated if it meets the following conditions:
- The borrower is natural person; and
- The credit is provided wholly or predominately;
- For personal, domestic or household purposes; or
- To purchase, renovate of improve residential property for investment purposes; or
- To refinance credit that has been provided wholly or predominately to purchases, renovate or improve residential property for investment purposes; and
- A charge is made for providing the credit; and
- The credit provider provides the credit in the course of a business.
This means that most standard home loans are regulated under the act. The main exceptions are:
- Loans in the name of a company (i.e. not to a “natural person”).
- Loans used predominantly to invest in commercial property, shares of for business purposes.
For these loan types there may be more flexible lending products that do not require any form of income verification, these are known as a no doc loan.
What does this mean for low doc loans?
Lenders and mortgage brokers are required to take reasonable steps to verify your financial position. This is at odds with the concept of a low doc loan where you do not need to provide evidence of your income. To get around this problem lenders have come up with loan products that can best be described as “alternative verification”.
By providing some documents as evidence of your income, lenders can fulfil their obligations under the NCCP act without requiring your tax returns. The most common documents that lenders ask for are:
- BAS statements: A lender may ask for 12 months BAS statements to verify your turnover & from that estimate your income.
- Trading statements: A lender may ask for 6 months bank account statements for your business to verify your turnover & from that estimate your income.
- Accountant’s letter: A lender may have a specific accountant’s letter template for your accountant to sign to confirm your income.
Note: We have low doc lenders that have interpreted the NCCP act in a different way to the other lenders. As a result, these lenders do not require any income evidence aside from a signed Income Declaration Form!
The old style of low doc loans, where only an income declaration was required, is effectively gone, with the exception of unregulated loans from specialist lenders.
Do no doc loans still exist?
No doc loans do not require any evidence of your income and in some cases do not require you to sign an income declaration. They do not meet the requirements of The National Consumer Credit Protection Act, and as such cannot be used for regulated loans. However they are still available from a few select lenders if your loan is NCCP unregulated.
We are committed to remaining not just compliant with all legislation, but also to achieve industry best practise in the way we handle our customers home loans. We would appreciate any comments, compliments or complaints that you have that can help us to improve our processes. If you have any issues please give us a call on 1300 258 858.
Please direct your feedback as follows:
- Direct compliance or NCCP queries as well as complaints to our Compliance Manager.
- Direct operational or process queries to our Operations Manager.
Find out more
If you would like to learn more about the NCCP and how it will affect your home loan application then please contact us and one of our home loan experts will get back to you.