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MORTGAGE ADVISERTASK – 1(a)EXAMPLE-3: EXISTING INVESTMENT LOANIn this complex example, the purpose is to take into consideration factors involved inlending for an investment property. Here, the lender requires to conduct more analysisand in case the investing entity already holds multiple rental properties, it becomesessential for the lending adviser to get accustomed with the strategies employed by theborrower and key ratios which can be obtained from the investor’s Portfolio InvestmentPlan. The key factors which will help the lending adviser to draw conclusions about theinvestor are – Capital Structure, Loan Type, Interest Structure and the Lender. Theguiding principle underlined by the government in the budget document must match theproducts in the investor’s property portfolio strategy after the application of theQuantitative Analysis in order to meet the declared outcomes in the said strategy.Qualitative AnalysisIn the cited example, four residential properties owned by the investor are managed by acompany. The properties have been rented out to tenants on fixed rental rates. Thismatches the investor’s strategy to offer one year fixed term tenancies. I am aware thatthe company’s existing investment strategy is still applicable and provides for:A Net Yield of 6 %. (the investor applies this prior to selecting a property)Debt Coverage Ratio of 1.5 times. (over all investment properties)Debt to Equity Ratio of 2.0 times. (over all investments)The investor applies the following when selecting a loan product: The lender most likely is to remain the same, as is for the existing lending.Debt level will always be as per the prescribed debt/equity ratio.LVR for all lending must be around 67%.Interest rate will remain fixed during the fixed term rental contract period.All loan terms must be as per the company’s interest cover strategy and mustinclude an interest only period, if required.The loan shall be in the name of the company owning the property and itsdirectors will provide personal guarantees.
TASK – 1(b)Mortgage Interest If money is borrowed for financing a rental property, all interest charges on theborrowed money can be claimed.Depreciation The borrower can claim depreciation on chattels, such as drapes, carpets, stove andwhite ware at depreciation rates set by the IRD. Any items rented along with theproperty can also be depreciated. Operating Expenses All kinds of operating expenses are allowed as deductions, for sole owners, joint tenantsand investment companies.Capital Improvements Major improvements made to the property, which change the structure of the propertyare to be capitalised by sole owners, joint tenants and investment companies.TASK – 1(c)Individual (Sole Ownership) An individual or individuals borrow as “Natural persons” and are legally treated asconsumers, hence legal protection is given to them under consumer laws. Tenants in Common When two or more people jointly purchase a property they are termed as “Tenants InCommon”. In case of death of a joint tenant, their share passes on to their estate.Partnerships Partnerships are termed as owners of the property like individuals. Since a partnershiphas no legal identity, the liability (both as borrower and mortgagor) is that of thepartners, both jointly and severally.Company (Limited Liability) A Company, incorporated under the Companies Act of 1993 with a Constitution istreated as an ‘Individual’ and has similar borrowing powers as it is considered as anindependent legal entity after its incorporation.Trusts A trust is a legal entity in which the "settlor(s)" place their assets under the control ofthe "trustees" on behalf of the "beneficiaries". Although all assets are termed to beowned by the trustees, they only hold the assets on trust on behalf of the beneficiaries.
TASK – 2(a)1.Portfolio of Evidence The Fact Find documents are often made part of the loan application form submitted to the lender and may include other details, such as: Personal details, such as age, occupation, earnings etc.An Income and Expenditure StatementAssets and Liabilities StatementValue and details of the security offeredCalculation of the loan amountStructure of the required loan2.Complete & Submit(i)The Loan ApplicationWhen a lender decides to grant a loan for a residential property, the process for loan application starts with collection of personal information and financial data of the borrower (known as Fact Find).
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