What is the NCCP Act?
The National Consumer Credit Protection Act 2009, or the NCCP Act, is legislation that’s designed to protect consumers and ensure ethical and professional standards in the finance industry.
Lenders and mortgage brokers must hold a credit licence or be registered as an authorised credit representative and must adhere to the rules set out in the NCCP.
The NCCP Act is regulated and enforced by ASIC in accordance with the National Credit Code (NCC).
Which loans are regulated?
As a general rule, almost all home loan types and applications are regulated under the Act.
The rules for this are complicated, however, a loan is likely to be regulated if it meets the following conditions:
- The borrower is a natural person; and
- A charge is made for providing the credit; and
- The credit provider provides the credit in the course of a business.
The credit is provided wholly or predominately;
- For personal, domestic or household purposes; or
- To purchase, renovate or improve residential property for investment purposes; or
- To refinance credit that’s been provided wholly or predominately to purchase, renovate or improve residential property for investment purposes.
This means that most standard home loans are regulated under the NCCP Act.
Search the NCCP Act legislation to learn more
You can search the NCCP Act online for terms which will give you more understanding of your consumer rights and the obligations of your mortgage broker to act in your best interests:
- Unsuitable credit contract (new contract)
- Credit guide for mortgage brokers
- Credit guide for lenders
- Credit quote
- Commissions and fees
- Preliminary assessment
- Reasonable enquiries & verification
- Credit assistance (mortgage broker)
- Credit activity
You can also refer to RG 209 Credit licensing: Responsible lending conduct for information about what is expected from mortgage brokers and lenders.
Which loans are unregulated?
There are exceptions that aren’t regulated by the NCCP Act. Home loans that are unregulated include:
- Loans in the name of a company (i.e. not to a “natural person”); or
- Loans used predominantly to invest in commercial property, shares or a business.
There may be more flexible lending products available for these loan types, where no form of income verification is required. These are known as no doc loans.
The process of applying for a home loan
When you apply for a loan with a mortgage broker, they’ll follow the specific process that has been set out in the Act.
- Make enquiries: Your mortgage brokers must make reasonable enquiries as to your financial position, requirements & objectives.
- Verification: Your mortgage broker must take reasonable steps to verify your financial position.
- Preliminary assessment: With the information gathered from steps one and two, your broker must make a preliminary assessment as to which loan(s) are appropriate for you, before recommending them to you.
The lender is required to make a final assessment using a similar process to mortgage brokers. They don’t normally provide this assessment to you as part of their process. However, you can request a copy by contacting your bank.
What does ‘not unsuitable’ mean?
Your mortgage broker and lender are required by the NCCP act to provide you with a loan that isn’t unsuitable.
ASIC deems a loan to be not unsuitable if:
- It meets your requirements and objectives, and
- You have the ability to repay the loan without experiencing substantial hardship.
Examples of your requirements might be a fixed interest rate or an interest only period. Your objectives might be to buy a home or borrow enough money to consolidate your debts.
The lender’s borrowing power calculator (serviceability calculator) will assess your ability to repay the debt without hardship.
The term “not unsuitable” was chosen because this puts the responsibility onto the customer to prove that the loan was unsuitable rather than onto the lender to prove that the loan was suitable.
Can’t you just tell me which lender is best?
We frequently receive requests from people who want to know which lender they should apply with and what interest rate they’ll receive, before we have gone through the first two steps properly!
It simply isn’t possible for us to recommend a lender, without knowing your full situation and seeing your supporting documents. Without this information, we can’t give you accurate information.
Additionally, it’s against the NCCP Act for us to recommend a product without making proper enquiries and verifying your information.
There are literally hundreds of different credit policies which could potentially 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 actually seeing the plans. Applying for a home loan is a complicated process and if we don’t complete a preliminary assessment then you risk having your loan declined or we may recommend an unsuitable loan.
Can you give me an indicative interest rate?
Yes, we can give you an indicative interest rate and the details of likely lender fees. We normally give you a range, as we can’t confirm immediately which lenders you’ll qualify for a mortgage with.
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 don’t need to provide evidence of your income. To get around this problem, lenders have come up with “alternative verification” methods.
By providing some documents as evidence of your income, lenders can fulfil their obligations under the NCCP Act, without requiring your tax returns and financial statements.
The most common documents that lenders ask for are:
- BAS statements: A lender may ask for 12 months’ BAS statements to verify your turnover and estimate your income.
- Trading statements: A lender may ask for 6 months bank account statements from your business, to verify your turnover and estimate your income.
- Accountant’s letter: A lender may have a specific accountant’s letter template for your accountant to sign, confirming your income.
The old style low doc loans, where only an income declaration was required, are effectively gone. The only exceptions to this are the unregulated mortgages available from specialist lenders.
Do no doc loans still exist?
No doc loans don’t require any evidence of your income and, in some cases, don’t require you to sign an income declaration. They don’t meet the requirements of the NCCP Act and as such, are only available from a few select lenders who offer unregulated loans.
For your loan to be unregulated, it must be either:
- For investment in commercial real estate,
- For investment in shares,
- For investment in a business, or
- In the name of a company / trust structure.
If your loan is regulated under the NCCP act then you can’t apply for a no doc loan. You must meet the above criteria or one that’s likely to be unregulated and then you can qualify for a no doc loan.
Please note that the interest rates and fees for no doc loans are significantly higher than those of normal mortgages.
We’re committed to complying with all regulatory legislation and we endeavour to find our customers the best loan product available. We appreciate any comments, compliments or complaints you may have that can help us improve our processes.
Please contact us on 1300 889 743 and direct your feedback as follows:
- Direct compliance or NCCP queries as well as compliments or complaints, to our Compliance Manager.
- Direct operational or process queries to our Operations Manager.
Find out more
If you’d like to learn more about the NCCP Act and how it’ll affect your home loan application, please call 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will get back to you within 24 hours.