NZ Level 5 Residential Property Lending cheat sheet

Core NZ statutes: Credit Contracts and Consumer Finance Act 2003 (CCCFA), Financial Markets Conduct Act 2013, Financial Service Providers (Registration and Dispute Resolution) Act 2008, Anti-Money Laundering and Countering Financing of Terrorism Act 2009, Privacy Act 2020, Fair Trading Act 1986, Human Rights Act 1993 (lending discrimination).

CCCFA lender duties: be a registered Financial Service Provider; belong to an approved dispute resolution scheme; comply with lender responsibility principles (ss 9C–9I), disclosure, hardship, and repossession rules.

CCCFA s 9C lender responsibility principles: exercise care, diligence and skill; treat borrowers and guarantors reasonably and ethically; ensure agreements are not oppressive; meet all legal obligations.

CCCFA application: a credit contract is 'consumer credit' when the debtor is a natural person and credit is for personal, domestic or household purposes (including residential mortgage secured over home). Business/ investment lending to a company or trust generally falls outside consumer credit unless a natural person is the debtor for personal purposes.

Responsible Lending Code 2021 (made under CCCFA) sets process requirements: suitability and affordability assessment, advertising, fees, variations, hardship, and records; lenders must be able to demonstrate compliance.

Penalties: CCCFA statutory damages up to $30,000 per borrower for breaches of lender responsibility principles; Commerce Commission enforcement; FMA oversight of conduct for registered banks and licensed insurers via CoFI regime.

Conduct licensing: banks and licensed insurers must meet CoFI (Financial Markets (Conduct of Institutions) Amendment Act 2022) fair conduct programme requirements from 31 March 2025.

Disclosure of conflicts and commissions: lenders and advisers must disclose commission and any conflicts under CCCFA and Financial Advisers Act / Financial Markets Conduct regime; advisers must be registered on Financial Service Providers Register.

Record-keeping: CCCFA requires lenders to keep records of suitability and affordability assessments for at least 7 years after the credit contract ends; Privacy Act 2020 requires secure storage and permitted use of personal information.

CCCFA s 9C(3)(a) requires lenders to make reasonable inquiries to ascertain borrower's requirements and objectives and assess whether credit meets them (suitability).

CCCFA s 9C(3)(b) requires lenders to make reasonable inquiries to assess whether the borrower can repay without suffering substantial hardship (affordability).

Responsible Lending Code 2021 specifies minimum inquiry areas: income and sources, expenses (living costs), debts, assets, dependants, employment, and any foreseeable changes (e.g. parental leave, retirement).

Affordability assessment must use a 'reasonable surplus' approach: net income minus verified expenses, existing debt commitments, and new loan repayments, with a buffer (commonly 1–2 percentage points above offered rate, plus test at higher of current or long-run rate).

Surplus calculation formula: Net income − living expenses − existing debt servicing − new loan servicing = surplus; surplus must be positive and above lender's minimum buffer to proceed.

Living costs must reflect actual declared expenses plus a benchmark (e.g. Stats NZ Household Economic Survey or lender's HEM-style benchmark), whichever is higher, unless verified otherwise.

Inquiries must be 'reasonable' and proportionate to the loan size and complexity; lenders may rely on verified documents (payslips, bank statements, IRD summaries, benefit letters) rather than unverified declarations.

Suitability includes term, structure (interest-only vs P&I), product type (fixed/floating), and features (offset, redraw) matching borrower's stated objectives.

Records of the assessment (inquiries made, information relied on, decision and reasons) must be retained for at least 7 years after the contract ends.

Variations (top-ups, restructures) and refinances are new lending events and require fresh suitability and affordability assessment unless a specific exemption applies.

Common products: table (principal and interest) loan, interest-only loan (typically up to 5 years residential owner-occupied), revolving credit facility, offset mortgage, bridging finance, low-deposit (LVR-restricted) products.

Interest rate types: fixed (set term, break fees apply), floating (variable, tracks OCR and funding costs), and split loans (portions fixed and floating).

Offset mortgage: linked transaction account balance offsets loan balance for interest calculation; interest charged on net balance (loan − offset balance).

Revolving credit: approved limit drawn and repaid; interest charged daily on drawn balance; minimum repayment usually a percentage of limit (e.g. 2% per month).

Break fee formula (typical): break fee ≈ (original fixed rate − current wholesale rate for remaining term) × outstanding balance × remaining term, adjusted for present value; can be zero or positive depending on rate movement.

Redraw facility: borrower can re-borrow prepaid amounts up to an agreed limit; availability may be restricted by lender policy and LVR.

Structure choices: trust ownership (family trust), company ownership, LTC (look-through company), or personal name; affect tax deductibility, asset protection, and lender's ability to take security.

Guarantees: limited or unlimited guarantee from a third party (e.g. parent for first-home buyer) may support serviceability or LVR; guarantor's liability and security must be disclosed and understood.

Kiwisaver withdrawal and First Home Grant: eligible first-home buyers may withdraw KiwiSaver (min 3 years membership) and access First Home Grant (income and house price caps apply) toward deposit.

LVR = loan amount ÷ property value (registered valuation or lender-accepted valuation) × 100.

RBNZ LVR restrictions (current settings): owner-occupier maximum 80% LVR for most lending; investor maximum 70% LVR; high-LVR lending limited to 20% of new owner-occupier and 5% of new investor exposures (subject to RBNZ review).

Valuation types: registered valuer report (full inspection, required for high-LVR or unusual properties), desktop valuation, automated valuation model (AVM), and e-valuer; lender policy determines which is acceptable.

Security: registered first mortgage over the property; lender should confirm clear title, no prior encumbrances, and appropriate insurance.

Loan-to-value must be tested at origination and on material variation (top-up, restructure) where new money is advanced.

Exemptions from LVR restrictions: bridging finance, refinancing existing loans without increasing principal, construction loans (progress payments), and loans to borrowers buying a home to live in under certain KiwiBuild/First Home schemes.

Property types and risk: leasehold (ground rent), apartment (body corporate levies, weathertightness), rural lifestyle, and cross-lease titles require specific valuation and lender scrutiny.

Insurance requirement: lender typically requires the property to be insured for replacement value with the lender noted as interested party; failure to insure can trigger default.

Valuation currency: most lenders accept valuations up to 3 months old for new lending; older valuations may require refresh.

Income verification sources: payslips (2–3 recent), employment agreement, IRD income summary, bank statements showing salary credits, self-employed financial statements and IR3 returns (typically 2 years), benefit letters, rental income (tenancy agreement and IR3), and investment income documentation.

Self-employed income: use net profit before tax (add back non-cash items such as depreciation) averaged over 2 years, or accountant's letter; lenders may apply a shading factor (e.g. 80%) to variable or bonus income.

Rental income: assess at gross rent minus a vacancy/expense allowance (commonly 75% of gross rent used for servicing).

Servicing calculation: net income − tax − living expenses − existing debt commitments (at assessed rate, e.g. credit card limit × 3–5% per month) − new loan repayment at assessment rate = surplus.

Assessment (test) rate: higher of the actual rate or a floor rate (commonly 7–8% or actual + 1–2%); stress-tests rate rises.

Debt servicing ratio (DSR) and total debt servicing ratio (TDSR) are used alongside surplus; DSR = total debt servicing ÷ gross income.

Credit report checks: Centrix, Equifax, or illion reports reveal defaults, judgments, insolvency, and enquiry history; bankruptcy and No Asset Procedure are material adverse events.

Deposit and funds-to-complete verification: source of deposit must be verified (savings history, sale proceeds, gift letter, KiwiSaver withdrawal confirmation) - also supports AML obligations.

Credit score and adverse history: lenders apply policy overlays (e.g. no defaults in last 24 months, no judgments); exceptions require credit committee approval and documented rationale.

Serviceability of guarantors: guarantor income and assets may be included only where the guarantee is enforceable and the guarantor has been assessed for affordability.

CCCFA initial disclosure: before entering the contract, lender must disclose key terms - credit limit, interest rate, fees, repayment frequency, total cost of credit, right to cancel, hardship provisions, and dispute resolution scheme details.

Continuing disclosure: lenders must notify borrowers of changes to interest rates, fees, and terms within specified timeframes (typically before the change takes effect, or as soon as practicable).

Variation disclosure: any variation to the contract (rate change, limit change, term change) requires disclosure of the variation and its effect.

Right to cancel: borrower may cancel a consumer credit contract within 5 working days of receiving initial disclosure (or 5 working days after entering contract if disclosure later); cancellation extinguishes the contract.

Unfair contract terms: CCCFA and Fair Trading Act 1986 (as amended 2022) prohibit unfair contract terms in standard form consumer contracts; Commerce Commission can seek declarations.

Oppressive contracts: court may reopen oppressive credit contracts under CCCFA ss 118–127 and order refunds, variations, or other relief.

Dispute resolution: lenders must belong to an approved scheme (e.g. Financial Services Complaints Ltd, Banking Ombudsman Scheme); borrowers must be told how to complain and escalate.

Complaints process: internal complaints procedure required; if unresolved within set timeframe (typically 2 months), borrower may refer to the external scheme at no cost.

Advertising and representations: Fair Trading Act 1986 prohibits misleading or deceptive conduct; CCCFA requires advertised rates and fees to be accurate and not misleading.

Privacy Act 2020: borrowers may access and correct personal information; lenders must obtain consent for credit checks and disclose use of credit reporting agencies.

AML/CFT Act 2009 applies to lenders as 'reporting entities'; obligations include customer due diligence (CDD), suspicious activity reporting, record-keeping, and a risk assessment and compliance programme.

CDD tiers: standard CDD (identity, address, beneficial ownership, source of funds/wealth, purpose of relationship), simplified CDD (lower risk only), and enhanced CDD (PEPs, high-risk jurisdictions, unusual transactions).

Identity verification: acceptable documents include NZ passport, NZ driver licence, and a recent utility bill or bank statement for address; electronic verification via approved providers is permitted.

Beneficial ownership: for trusts and companies, identify individuals with >25% ownership or effective control; for trusts, identify settlors, trustees, beneficiaries, and any person with effective control.

Source of funds and source of wealth must be verified for deposits and loan repayments; unexplained large cash deposits or third-party payments are red flags.

Suspicious activity reports (SARs) go to the Financial Intelligence Unit (FIU) at NZ Police; tipping off the customer is prohibited.

Record-keeping: CDD records must be kept at least 5 years after the business relationship ends; transaction records for at least 5 years.

Risk assessment: lenders must conduct a business-wide risk assessment and customer risk assessments, and update them; DIA supervises lenders (non-bank) and RBNZ supervises banks.

Politically exposed persons (PEPs): enhanced CDD and senior management approval required; includes domestic and foreign PEPs and their family/associates.

Lender's mortgagee interest: property insurance must note the lender as interested party; lender may force-place insurance if borrower fails, at borrower's cost.

Mortgage indemnity insurance (MI): protects the lender (not borrower) against loss on high-LVR loans; premium may be capitalised into the loan; borrower remains liable for shortfall.

Life and disability insurance: not mandatory but often recommended; lenders must not make credit conditional on buying insurance from a particular provider.

Guarantees: a guarantee is a separate contract; guarantor must receive independent legal advice and full disclosure of the borrower's financial position; CCCFA s 9C applies to guarantors as well as borrowers.

Guarantee enforceability: limited guarantee caps liability; unlimited guarantee exposes all guarantor assets; 'all obligations' guarantees should be avoided where possible.

Cross-collateralisation: security over multiple properties supports multiple loans; increases lender recovery options but complicates release of individual properties.

Second mortgages and caveats: lender may require a second mortgage or caveat to protect position when first mortgage is held elsewhere.

Risk mitigants: lower LVR, principal-and-interest repayments, shorter interest-only periods, verified income, and diversification across security.

RBNZ capital and DTI: banks hold capital against mortgage exposures; debt-to-income (DTI) restrictions may apply to high-DTI lending (RBNZ has signalled DTI tool availability).

Needs analysis covers: purpose of borrowing, time horizon, risk tolerance, repayment capacity, existing debt, future plans (children, retirement, sale of property), and preferences for rate type and features.

Suitability must be documented: reasons why the recommended product and structure meet the customer's requirements and objectives, and why alternatives were not chosen.

Conflicts of interest: disclose commissions, referral fees, and any ownership links; advisers must prioritise customer interest over remuneration.

Vulnerable customers: extra care for those with limited English, cognitive impairment, financial hardship, or elder abuse risk; consider support persons and clear communication.

Ethical lending: avoid pressure selling, ensure informed consent, provide clear documentation, and do not lend where the customer cannot afford repayments even if LVR permits.

Product switching and refinancing: assess whether the switch benefits the customer (lower cost, better features) after fees, break costs, and loss of features.

Record-keeping: document needs analysis, advice given, customer decisions, and any declined recommendations.

Fair conduct: CoFI fair conduct programme requires banks and insurers to design products and incentives that support fair customer outcomes.

Advertising and marketing must be clear, not misleading, and must not target vulnerable groups inappropriately.

Default occurs when borrower fails to meet obligations (missed payments, breach of insurance, failure to maintain security); lender must issue a formal notice before enforcement.

CCCFA hardship: borrower may apply for hardship variation (payment reduction, deferral, term extension) on grounds of illness, injury, loss of employment, or other reasonable cause; lender must respond within specified timeframe (usually 10 working days).

Hardship process: assess borrower's circumstances, offer a variation where reasonable, document the decision, and notify the borrower of the outcome and right to complain.

Repossession: lender must give notice under CCCFA (typically 20 working days) before repossessing; court order required for mortgagee sale of land occupied as a home unless borrower consents.

Mortgagee sale: lender must obtain best price reasonably obtainable; proceeds applied to debt, costs, and any surplus returned to borrower.

Collections: early contact, arrears letters, phone contact, and formal demand; lenders must treat borrowers reasonably and not engage in harassment.

Credit reporting: defaults may be reported to credit bureaux after notice; repayment arrangements can be recorded as 'arrangement' rather than default.

Financial mentoring and support: lenders may refer borrowers to free financial mentoring (FinCap) and Work and Income; consider MSD assistance and KiwiSaver hardship withdrawal.

Post-default options: refinancing, sale by borrower, debt repayment plan, or write-off; each has different credit reporting and tax implications.