Affordability assessment, credit checking and lending criteria
Domain focus
Affordability assessment, credit checking and lending criteria tests whether you can gather and verify income, expenses, debts and credit history before deciding whether a loan is suitable.
Core rules
- Make reasonable enquiries into the borrower's financial position; verify income and expenses rather than relying only on stated figures.
- Assess serviceability: net income minus verified living expenses, existing commitments and the proposed repayment should leave a surplus, with a buffer for rate rises or unexpected costs.
- Check a credit report for defaults, repayment history, enquiries and adverse data; explain and record any inconsistencies.
- Apply lender criteria consistently: serviceability, credit score, security, LVR and policy exceptions.
- Record the reasoning, not just the decision.
Worked example
A borrower earns $1,300 net weekly. Verified living expenses are $850, existing loan repayments $200, and the proposed repayment $300. Reasoning: $1,300 minus $850 minus $200 minus $300 equals negative $50 before any buffer, so the loan is unaffordable on the stated numbers. The lender should decline or restructure; approving because the credit score is high would breach the affordability duty.
Traps
- Using gross salary without tax, KiwiSaver or other deductions.
- Ignoring existing debts or overdraft reliance.
- Accepting low stated expenses without bank-statement verification.
- Relying on a credit score as a substitute for affordability.
- Failing to document why an exception was approved.