NZ Level 5, Residential Property Lending Strand - Assignment Solution

This document presents a comprehensive solution to a Residential Property Lending assignment, addressing the financial situations of three clients: Julie Cook, Jing Tao and Bai Tseung, and Bill Gray. It analyzes their income, assets, and liabilities, recommending appropriate lending products such as Star Pack, premium and 100% offset home loans and conventional mortgages, while also discussing the legal and taxation implications of these loans. The assignment further explores the impact of lending on the borrowers' legal structures, including the consideration of financial ratios like debt servicing and net surplus ratios. It emphasizes the importance of specialists such as legal advisors and tax consultants, and the actions lenders take in case of default. The solution provides detailed financial analyses, including the calculation of various financial ratios, and discusses the suitability of different loan products based on each client's specific circumstances and financial position. The assignment is completed for the NZ Level 5 Residential Property Lending Strand at Strategi Institute.

Running head: NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
NZ Level 5, Residential Property Lending Strand
Residential Property Lending Strand- Completed
Assignment Two
Candidate’s Details
Name: Sushant Yadav
Address: 5/7 Inverary Avenue, Epsom, Auckland
Phone: [phone]
Email: [e-mail]
Assessor’s Details
Name:
Address: C/- Strategi Institute, 17e Corinthian Drive, Albany, Auckland 0632
Phone: [phone]
Email: [e-mail]

1
NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
Contents
Task 1:.............................................................................................................................................2
Financial situation of clients:.......................................................................................................2
Julie Cook’s financial situation:..............................................................................................2
Appropriate and suitable lending products and services for the client:...................................5
Legal and taxation implications:..............................................................................................7
Impact of lending on the legal structure of the borrower:.......................................................7
Demonstration of different ratios:...........................................................................................7
Financial situation of Jing Tao and Bai Tseung:.........................................................................9
Appropriate and suitable lending products and services for the client:.................................11
Legal and taxation implications:............................................................................................11
Impact of lending on the legal structure of the borrower:.....................................................12
Demonstration of different ratios:.........................................................................................12
Bill Gray’s financial situation:...................................................................................................13
Appropriate and suitable lending products and services for the client:.................................16
Legal and taxation implications:............................................................................................17
Impact of lending on the legal structure of the borrower:.....................................................17
Demonstration of different ratios:.........................................................................................17
Task 2:...........................................................................................................................................19
Part 2a:.......................................................................................................................................19

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
Part 2b:.......................................................................................................................................20
Task 3:...........................................................................................................................................20
References:....................................................................................................................................33

3
NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
Task 1:
Financial situation of clients:
Julie Cook’s financial situation:
Julie Cook is a 41 year old solo mother having a dependent 9 year old son. She currently
holds the position of manager in JoLo Courier Drivers. She is in this position for last five years
with good track record in savings without any current debt except the credit card due of $500 on
master card. The gross annual salary of Julie from her employment is $88,0001.
In order to evaluate the financial situation of Julie at present it is important to state the amount of
assets and liabilities of her at present as well her current monthly income and expenditures. The
table below contains the financial position of Julie Cook ate present. 
Assets Amount
($)
Liabilities Amoun
t ($)
ASB 65,000.0
0
Credit Card 500.0
0
KiwiSaver 15,000.0
0
Car 5,000.0
0
Personal effects 75,000.0
0
1 Barrow, Rochelle, and Tobias Irrcher. "Capturing loan-to-value data in New Zealand–
challenges and opportunities." IFC Bulletins chapters 39 (2015).

4
NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
TOTAL 160,000.0
0
TOTAL 500.0
0

By deducting the total current monthly expenses of Julie from her monthly income the monthly
savings of Julie has been calculated below.
Particulars Amount
($)
Amount
($)
Current annual gross salary 88,000.0
0
(A): Current monthly gross salary (88000/12) 7,333.33
Monthly expenses at present
Hire purchase costs
-
Rent payable per month 1,680.0
0
Medical and life insurance payable each month 100.0
0
Insurance for house

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
-
Insurance for contents payable at each month 60.
00
Expenses on motor vehicles 100.0
0
Expenses on power, gas and phone per month 300.0
0
Current monthly rates
-
Monthly living expenses 400.0
0
Cost of education at month 50.
00
Superannuation costs 100.0
0
Mortgage payments per month at present
-
Monthly payments for other loans at present
-

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
Other monthly expenses
-
(B) Total monthly expenses 2,790.00
(C) Current monthly savings (A-B) 4,543.33
Appropriate and suitable lending products and services for the client:
Taking into consideration the financial position and monthly income and expenditure of
Julie Cook the following lending products and services are recommended to her to acquire the
property at 21a Masters Avenue, Hamilton.
Star Pack and premium:
The objective of this loan product is to provide financial assistance to property buyers to
acquire or refinance of investment property or owner occupied property. In addition such loan is
also suitable for construction of residential property (new), repay home equity loans and
renovation of existing properties. Minimum loan amount under the loan product is $50,000 with
loan terms varying between 5 years and 30 years. Interest is payable on the closing balance at the
end of each day with monthly payable schedule of interest and principal2.
100% offset home loan:
2 Morgan, Peter J., Paulo José Regis, and Nimesh Salike. "LTV policy as a macroprudential tool
and its effects on residential mortgage loans." Journal of Financial Intermediation (2018).

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
This is one of the most suitable loan products for the borrowers as this puts the borrowers
in 100% control of their loans. The loan can be used for any of the following purposes by a
borrower:
I. Acquisition of owner occupied property.
II. Acquisition of investment property.
III. Refinance of owner occupied or investment property.
IV. Consolidation of debt.
V. Investment and personal purposes home equity loans.
VI. For bridging finance.
VII. Construction and renovation of residential property.
The loan is allowed 100% offset with 1 year to 5 year term choice for variable or fixed interest
rate. No application fees are needed to be paid for such loan with minimum amount of loan under
the product is $10,000. The period of loan term can vary from 5 to 30 years. The repayment is to
be made per month3. Considering the loan requirements of Julie the features of 100% offset loan
will allow Julie to offset her liabilities to 100% by following the terms and conditions of the
loan. Hence, it is suitable for Julie. (Please discuss why this is suitable for Julie’s situation).
The legal advisors and tax consultants shall help borrowers at the time of taking loans by stating
the tax implications of interest to be paid. Also impact of repayment of principal amount of loan
on the taxable income of the borrower shall also be outlined by the tax consultant. Legal advisor
will outline the legal implications of defaulting in repayment of loan. Accordingly a borrower
will be in better position to determine his position with the services from different specialists.
(Legal and taxation implications: what other specialists need to eb involved & why?)
3 Morgan, Peter J., Paulo José Regis, and Nimesh Salike. "LTV policy as a macroprudential tool
and its effects on residential mortgage loans." Journal of Financial Intermediation (2018).

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
The client is required to pay monthly repayment amount as and when falls due. In case of
default in repayment of loan the financial institutions or banks have the liberty to take
appropriate actions against the borrower including recovering the loan by capturing and selling
the mortgage property4.
The interest included in the amount of annual repayment of loan will be allowed as
deduction while computing the taxable income of the borrower. Thus, the interest on loan will
reduce the tax liability of the borrower.
Impact of lending on the legal structure of the borrower:
The legal structure of the borrower would remain unchanged even after taking the loan
however, in case the liability of the borrower exceeds his assets and the borrowers fails to
discharge his liabilities then the borrower, in this case Julie Cook will be adjusted insolvent5. The
lender will consider the financial state of Julie before determining whether to give loan to her or
not. The monthly income of Julie along with monthly savings shall be specifically considered by
the lender to determine whether to accept the loan application of Julie and is yes then the amount
of loan shall be dependent on the ability of the applicant tp make monthly repayment from her
savings. (What else will the lender consider if Julie is taking out the loan as an individual &
wwho is responsible for the loan?)
4 Barrow, Rochelle, and Tobias Irrcher. "Capturing loan-to-value data in New Zealand–
challenges and opportunities." IFC Bulletins chapters 39 (2015).
5 Kelsey, Jane. The New Zealand experiment: A world model for structural adjustment?. Bridget
Williams Books, 2015.

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
Demonstration of different ratios:
Net operating income (4165.81 x 12)
49,989.72
Annual debt
22,256.28
Debt servicing ratio in times (Net operating income / Annual debt)
2.25
Net surplus ratio
Net operating income (4165.81 x 12)
49,989.72
Less: Annual debt repayment
22,256.28
Net surplus
27,733.43
Net surplus ratio in %(27733.43 x 100/49989.72)
55.48
Uncommitted monthly income (Monthly savings)
4,165.81

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
What about mortgage repayments? Included in annual debt repayment.
Financial situation of Jing Tao and Bai Tseung:
Current monthly income and expenditures
Particulars Amount
($)
Amount ($)
Current annual gross salary 132,000.00
(A): Current monthly gross salary
(132000/12)
11,000.00
Monthly expenses at present
Medical and life insurance payable each
month
200
Insurance for house 45
Insurance for contents payable at each
month
60
Expenses on motor vehicles 200
Expenses on power, gas and phone per 300

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NZ LEVEL 5, RESIDENTIAL PROPERTY LENDING STRAND
month
Current monthly rates 120
Monthly living expenses 600
Cost of education at month 0
Superannuation costs 200
Mortgage payments per month at present 1922
Monthly payments for other loans at
present -
Other monthly expenses
-
(B) Total monthly expenses 3647
(C) Current monthly savings (A-B) 7,353.00
Financial position:
Assets Amount Liabilities Amount
$520,000 Mortgage $230,000
ASB $50,000