NZ Level 5 Residential Property Lending flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

CCCFA lender responsibility principles

Set out in ss 9C–9I of the CCCFA; require lenders to exercise care, diligence, and skill, treat borrowers and guarantors reasonably and ethically, and ensure contracts are not oppressive.

Responsible Lending Code 2021

A regulation under the CCCFA setting minimum process requirements for suitability and affordability assessments, advertising, fees, variations, hardship, and record-keeping by lenders.

CoFI regime

The Financial Markets (Conduct of Institutions) Amendment Act 2022 requires banks and licensed insurers to operate fair conduct programmes from 31 March 2025, overseen by the FMA.

Suitability assessment

A CCCFA requirement to make reasonable inquiries into the borrower's requirements and objectives and assess whether the credit contract meets them, documented and retained.

Affordability assessment

A CCCFA requirement to make reasonable inquiries to assess whether the borrower can repay the loan without suffering substantial hardship, using verified income, expenses, and debts.

Assessment (test) rate

The interest rate used in servicing calculations, set higher than the offered rate (often 1–2 percentage points above or a floor rate) to test resilience to rate rises.

Living cost benchmark

A minimum expense figure used in affordability assessments, based on published household expenditure data and applied where declared expenses fall below the benchmark.

Offset mortgage

A loan linked to a transaction account where the credit balance reduces the loan balance for interest calculation, lowering interest while keeping funds accessible.

Revolving credit facility

A loan with an approved limit that can be drawn and repaid; interest is charged on the drawn balance and minimum repayments are usually a percentage of the limit.

Break fee

A charge when a fixed-rate loan is repaid early, reflecting the lender's loss from replacing the fixed funding at a lower current wholesale rate.

Interest-only loan

A loan where repayments cover interest only for a set period, usually up to five years for owner-occupied residential lending, after which principal repayments begin.

Loan-to-value ratio (LVR)

The loan amount divided by the property value, expressed as a percentage; used to assess risk and apply RBNZ restrictions on high-LVR residential lending.

Registered valuation

A property valuation prepared by a registered valuer following an inspection, typically required for high-LVR lending or unusual properties.

Automated valuation model (AVM)

A computer-generated property value estimate based on sales and property data, used for lower-risk lending where lender policy permits.

Mortgagee interest endorsement

A note on the property insurance policy naming the lender as interested party, ensuring the lender is notified of and protected against loss.

Self-employed income verification

Assessment of self-employed income using financial statements and IR3 returns, typically averaged over two years, with non-cash items such as depreciation added back.

Debt servicing ratio

Total debt servicing (existing and new loan repayments) divided by gross income, used alongside surplus calculations to assess credit risk.

Credit report enquiry

A check with a credit bureau (Centrix, Equifax, illion) showing defaults, judgments, insolvency, and previous credit enquiries, used in credit assessment.

Funds-to-complete verification

Evidence that the borrower has sufficient verified funds for the deposit and costs, including savings history, sale proceeds, gift letters, or KiwiSaver withdrawal confirmation.

Initial disclosure

Pre-contract information required by the CCCFA, including key terms, interest rate, fees, total cost of credit, cancellation rights, hardship provisions, and dispute resolution details.

Right to cancel

A borrower's right under the CCCFA to cancel a consumer credit contract within five working days of receiving initial disclosure, extinguishing the contract.

External dispute resolution scheme

An approved scheme (such as the Banking Ombudsman Scheme or Financial Services Complaints Ltd) that lenders must belong to and that borrowers can use free of charge.

Customer due diligence (CDD)

AML/CFT checks to verify a customer's identity, address, beneficial ownership, and source of funds and wealth before establishing a business relationship.

Beneficial ownership

The individuals who ultimately own or control a customer (over 25% ownership or effective control), who must be identified under the AML/CFT Act.

Suspicious activity report

A report filed with the Financial Intelligence Unit at NZ Police when a lender suspects money laundering or terrorist financing; tipping off the customer is prohibited.

Politically exposed person (PEP)

A person entrusted with prominent public functions, and their family and associates, requiring enhanced customer due diligence and senior management approval under the AML/CFT Act.

Mortgage indemnity insurance

Insurance protecting the lender against loss on high-LVR loans; the premium may be capitalised and the borrower remains liable for any shortfall.

Limited guarantee

A guarantee where the guarantor's liability is capped at a stated amount or specific assets, reducing exposure compared with an unlimited guarantee.

Cross-collateralisation

Arranging security over multiple properties to support multiple loans, increasing lender recovery options but complicating the release of individual properties.

Needs analysis

A documented assessment of the customer's purpose, time horizon, risk tolerance, repayment capacity, future plans, and product preferences before recommending a loan.

Hardship application

A CCCFA process where a borrower in financial difficulty (illness, job loss, or other reasonable cause) applies for a variation such as reduced payments or term extension.

Mortgagee sale

The lender's sale of a repossessed property after default and required notices, where the lender must obtain the best price reasonably obtainable and account for proceeds.