NZ Level 5 Residential Property Lending key terms

A New Zealand industry code that sets standards for lenders when assessing affordability and offering credit, administered by the Financial Markets Authority and binding on signatory lenders.

The process of testing whether a borrower can meet loan repayments from verified income after allowing for living expenses, existing debts and plausible future changes such as rate rises.

A margin added to the actual interest rate when testing affordability, so the borrower is shown to cope if rates rise above current levels.

The money left over each pay period after verified income is reduced by tax, living expenses and existing debt commitments; a positive figure supports the loan application.

The household's regular day-to-day spending on food, utilities, transport, insurance and similar costs, which must be measured realistically rather than using bare statistical benchmarks.

Checking declared living costs against bank transaction data, statements or a detailed budget so that the affordability picture reflects actual spending behaviour.

A borrower's capacity to service a loan, judged from verified income, commitments and expenses under stressed assumptions; distinct from willingness to pay.

The arithmetic that converts income and debts into a repayment capacity figure, applying lender policies on income shading, commitments and the assessment interest rate.

Applying a discount or partial recognition to income that is variable, irregular or uncertain, such as bonuses, commission or overtime, when calculating serviceability.

Income evidenced by documents such as payslips, bank statements, tax records or employer confirmation, rather than accepted on the borrower's word alone.

Verifying business owners' earnings through financial statements, tax returns and account conduct, often using an averaged or conservative figure because income fluctuates.

The loan amount expressed as a percentage of the property's assessed value; a higher LVR means less borrower equity and greater lender exposure.

Lending at a high LVR, typically above 80 percent, which attracts tighter policy limits, pricing adjustments and sometimes mortgage insurance requirements.

A property value assessment prepared by a suitably qualified valuer, commonly required for higher-risk or unusual loans and relied on for security and LVR purposes.

A computer-generated property estimate based on sales data and property attributes, used for quick low-risk assessments but unsuitable where accuracy is critical.

The asset, usually a residential property, that secures the loan and may be sold by the lender if the borrower defaults.

A legal charge over property securing repayment of a loan, giving the lender rights against the property if the borrower fails to pay.

A promise by a third party to meet the borrower's obligations if the borrower does not, often supported by a mortgage over the guarantor's property.

A person who accepts legal liability for another person's debt, requiring independent advice and a clear understanding of the risk being taken on.

Insurance protecting the lender against loss if a borrower defaults, commonly required on low-deposit loans and usually paid for by the borrower.

Advice from a lawyer acting for a guarantor or borrower alone, confirming they understand the transaction and its risks before signing.

A record from a credit reporting agency showing a person's borrowing history, repayment conduct, defaults and enquiries, used to assess creditworthiness.

The pattern of a borrower's past borrowing and repayment behaviour, including arrears or defaults, which informs the lender's risk view.

A credit agreement with a natural person for personal, domestic or household purposes, attracting protections under New Zealand consumer credit law.

Statutory principles requiring lenders to act responsibly when entering credit agreements, including making reasonable enquiries about affordability and the borrower's needs.

The lender's obligation to give borrowers prescribed information about the loan, such as key terms, fees, interest and repayment details, before and during the contract.

A borrower's request for changed repayment arrangements because of illness, unemployment or other reasonable cause, which the lender must consider in good faith.

An agreed change to a loan's terms, such as reduced payments or a repayment holiday, granted in response to hardship and usually recorded in writing.

Overdue amounts the borrower has failed to pay by the due date, tracked by days past due and used to trigger early contact and support.

A failure to meet loan obligations, typically persistent non-payment, which may entitle the lender to take enforcement action subject to legal notice requirements.

The sale of a mortgaged property by the lender after default, conducted under statutory duties to obtain a reasonable price and act fairly.

Laws and procedures requiring lenders to identify customers, verify identity and report suspicious activity to prevent money laundering and terrorism financing.

The identity verification and risk assessment steps a lender must complete on customers, including checking beneficial owners and the purpose of the relationship.

A report filed with the financial intelligence unit when a lender suspects a transaction or customer may involve money laundering or terrorism financing.

A borrower whose circumstances, such as illness, bereavement, disability or financial stress, reduce their ability to understand or act in their own interest.

An independent external scheme, such as a financial ombudsman, that considers complaints about lenders after the lender's internal complaints process is exhausted.

The lender's own procedure for receiving, investigating and responding to customer complaints within set timeframes before external escalation.

A temporary pause in principal and interest payments, usually granted during hardship and often with interest added to the loan balance.

A transaction account linked to a loan where the balance reduces the interest charged on the loan while remaining accessible to the borrower.

A loan feature letting a borrower access extra repayments already made, reducing available credit flexibility or increasing the loan balance again.