In June 2022, Charlie purchased a property in Christchurch for $312,500. To top up the funds he already had available, Charlie applied to a lender for a bridging loan. In July 2022, Charlie signed a loan agreement for a $201,500 loan with monthly interest-only repayments for the first six months. The loan was secured by the property, giving the lender the option to sell if Charlie defaulted. It was intended that Charlie would repay the loan at the end of the six months, although the loan term could be extended at the lender’s discretion.
Charlie hadn’t repaid the loan a year and a half later because the renovations to his property were taking longer than expected. The lender exercised their discretion to extend the due date for repayment. The lender contacted Charlie several times to discuss repayment, but by December 2023, the lender decided to realise their security interest and sell the property. It sold for $345,000, which was used to discharge Charlie’s loan.
Charlie complained to FSCL.
Dispute
Charlie complained that his loan was a consumer credit contract, and that the lender should have assessed the affordability and suitability of his loan under section 9(c) of the Credit Contracts and Consumer Finance Act 2003 (the Act). Charlie explained that he had purchased the property as his home, not as an investment property. He said that he had been living in the property since he purchased it, he had referred to the property address as his permanent residence on some of his loan documents, and he had received legal advice confirming his loan was a consumer credit contract.
The lender explained that throughout the entire loan process, Charlie had said that the property would be an investment property. This meant that the loan was a non-consumer loan, and the affordability and suitability assessments under the Act weren’t required.
Review
We found that it had been reasonable for the lender to believe that Charlie’s loan was for an investment property, not to purchase a home. This was because:
- Charlie told the lender in both his loan application and in an email that he planned on using the loan to buy the property as an investment property.
- Charlie had received legal advice on his loan agreement before he signed, and his lawyer had signed a document confirming that she had explained the Act to him and that the loan suited Charlie’s needs.
- Charlie was likely living in the property while he was renovating for his convenience, not because he wanted to live there permanently.
As a loan to purchase an investment property is a non-consumer loan, the requirement in the Act for a lender to assess suitability and affordability did not apply.
Resolution
We suggested that Charlie discontinue his complaint. Charlie did not respond, so we closed our file.
Insights
The purpose of a loan, such as whether it is intended for an investment or as a personal home, will impact the loan structure and lender responsibilities. It is important that borrowers are clear, both to themselves and to their lender, about the purpose of their loan before they apply for the loan and sign their loan agreement.
