Deposit Takers (Lending) Standard 2027

Part 2
Lending criteria for residential mortgage loans 5 Criteria to be applied for residential mortgage loans 4 6 Deposit taker must determine nature of security 4 7 Deposit taker must determine nature of lending 5 8 Bridging finance 5 9 Equity release 5 10 Kāinga Ora first home purchase 5 11 New build finance 5 12 New build purchase 6 13 Ordinary finance 6 14 Refinancing 6 15 Property remediation finance 6 16 Security substitution 7
Part 3
Loan-to-value and debt-to-income ratios
Loan-to-value ratio
17 Requirement to determine loan-to-value ratio 7 Debt-to-income ratio 18 Requirement to determine debt-to-income ratio 7 19 Debt-to-income ratio 7 20 Calculation of debt 8 21 Calculation of income 9 22 Calculation of business surplus 9
Part 4
Lending restrictions
23 Restrictions by licence condition 10
24 Calculation of qualifying credit under this Part 10 25 Calculation of qualifying credit for limit relating to debt-to-income ratio 11 26 Calculation of qualifying credit for limit relating to loan-to-value ratio 11 27 Loan-to-value ratio applicable in certain circumstances 12 Standard 1 Title This is the Deposit Takers (Lending) Standard 2027. 2 Commencement This standard comes into force on 1 December 2028.

Part 1
Preliminary provisions
3 Interpretation
In this standard, unless the context otherwise requires,— Act means the Deposit Takers Act 2023 BNPL contract has the same meaning as in regulation 3 of the Credit Contracts and Consumer Finance Regulations 2004 borrowing party means a single person or a group of persons that is seeking a residential mortgage loan from a deposit taker building work means work for, or in connection with, the construction, alteration, demolition, or removal of a building business debt means credit borrowed by a person for the purposes of carrying on business activities code compliance certificate means a certificate issued by a building consent authority under section 95 of the Building Act 2004 credit contract has the same meaning as in clause 1(1) of Schedule 2 of the Act credit limit has the same meaning as in section 5 of the Credit Contracts and Consumer Finance Act 2003 debt means an amount calculated under clause 20 debt-to-income ratio has the meaning set out in clause 19 internal models deposit taker has the meaning set out in clause 5 of the Deposit Takers (Capital) Standard 2027 investment property means a residential property that is not an owner-occupied residential property Kāinga Ora means Kāinga Ora–Homes and Communities established under section 8 of the Kāinga Ora–Homes and Communities Act 2019 loan commitment date means the date the loan was entered into loan value— (a) for an internal models deposit taker, has the same meaning as in clause 78(2) of the Deposit Takers (Internal Models) Standard 2027, except that, when incorporating any off-balance sheet exposures in the loan value, the deposit taker may apply a credit conversion factor of 100% rather than using its own EAD; and (b) for any other deposit taker, has the same meaning as in clause 150(1) of the Deposit Takers (Capital) Standard 2027 loan-to-value ratio— (a) for an internal models deposit taker, has the same meaning as in clause 78 of the Deposit Takers (Internal Models) Standard 2027, except that, if the deposit

taker has varied the calculation of loan value as permitted in these definitions, the deposit taker must use that loan value in calculating the loan-to-value ratio; and (b) for any other deposit taker, means the loan-to-value ratio calculated in accordance with clause 150 of the Deposit Takers (Capital) Standard 2027 non-property investment RML has the same meaning as in clause 149(1) of the Deposit Takers (Capital) Standard 2027 owner-occupied residential property has the same meaning as in clause 149(1) of the Deposit Takers (Capital) Standard 2027 principal residential unit means the main or primary residential unit on a site on which other residential units are subordinate or ancillary property investment RML has the same meaning as in clause 149(1) of the Deposit Takers (Capital) Standard 2027 property value has the same meaning as in clause 150(1) of the Deposit Takers (Capital) Standard 2027 residential mortgage loan has the same meaning as in clause 148 of the Deposit Takers (Capital) Standard 2027 revolving credit contract has the same meaning as in section 5 of the Credit Contracts and Consumer Finance Act 2003 student loan has the same meaning as in section 4 of the Student Loan Scheme Act unpaid balance has the same meaning as in section 5 of the Credit Contracts and Consumer Finance Act 2003 4 Application This standard applies to a licensed deposit taker if a condition of its licence states that this standard applies.
Part 2
Lending criteria for residential mortgage loans 5 Criteria to be applied for residential mortgage loans When deciding whether a borrowing party qualifies for a residential mortgage loan, a deposit taker must determine the following:
(a) the nature of the security:
(b) the nature of the lending.
6 Deposit taker must determine nature of security A deposit taker must determine whether the mortgage securing the loan is over owner￾occupied residential property or investment property, or both.

7 Deposit taker must determine nature of lending A deposit taker must determine for which of the following the credit is to be used:
(a) bridging finance:
(b) equity release:
(c) a Kāinga Ora first home purchase:
(d) new build finance:
(e) a new build purchase:
(f) ordinary finance:
(g) refinancing:
(h) property remediation finance:
(i) security substitution.
8 Bridging finance
(1) A residential mortgage loan is to be used for bridging finance if— (a) the borrowing party is already a mortgagee of an owner-occupied residential property; and (b) the loan is to be secured by the existing mortgage or a mortgage over another owner-occupied residential property, or both; and (c) any amount advanced under the loan is to be— (i) used for the purchase of another owner-occupied residential property; and (ii) repaid within 12 months of the loan commitment date. (2) If the loan is not repaid within 12 months of the loan commitment date, the loan must be classified as ordinary finance unless it falls within any of the other categories of lending listed in clause 7. 9 Equity release A residential mortgage loan is to be used for equity release if the loan is a reverse RML, as defined in clause 149 of the Deposit Takers (Capital) Standard 2027. 10 Kāinga Ora first home purchase A residential mortgage loan is to be used for a Kāinga Ora first home purchase if— (a) the loan is to be secured by a mortgage over an owner-occupied residential property; and (b) Kāinga Ora has indemnified the deposit taker for any loss that may occur in connection with the loan. 11 New build finance A residential mortgage loan is to be used for new build finance if—

(a) any advance to the borrowing party is to be used for the erection of a principal residential unit, including the purchase of residential land, building work, design work, consent costs, and legal expenses; and (b) the loan is to be secured by a mortgage over residential land on which the principal residential unit is erected; and (c) the loan is entered into before the completion of any building work other than demolition and site work, such as foundations and connections to services; and (d) the deposit taker is satisfied that the construction of the principal residential unit will be completed in a reasonable timeframe after the loan commitment date. 12 New build purchase A residential mortgage loan is to be used for a new build purchase if— (a) the loan is to be secured by a mortgage over residential land on which a principal residential unit is newly erected; and (b) the borrowing party enters into the loan no later than 6 months after the date on which the code compliance certificate for the building work was issued. 13 Ordinary finance A residential mortgage loan is to be used for ordinary finance if— (a) the loan is to be secured by a mortgage over investment property, owner-occupied residential property, or both; and (b) no other lending category applies. 14 Refinancing A residential mortgage loan is to be used for refinancing if— (a) the borrowing party is to repay in full a residential mortgage loan (the existing loan); and (b) the credit provided under the new loan does not exceed the sum of— (i) the unpaid balance of the existing loan at the time of repayment; and (ii) an amount the deposit taker is reasonably satisfied is to be used for incidental or ancillary costs, such as the payment of legal expenses. 15 Property remediation finance A residential mortgage loan is to be used for remediation finance if— (a) the deposit taker is already a mortgagee of an investment property or an owner￾occupied residential property, or both (the existing mortgage); and (b) the purpose of the loan is to fund a repair or remediation of the property; and (c) the repair or remediation is not routine or deferred maintenance; and (d) the need for the loan arises because of any of the following events— (i) a fire or natural disaster:

(ii) significant weather-tightness issues:
(iii) a need to improve the property to meet currently accepted standards (for example, seismic strength standards or rental property standards relating to matters like heating and insulation); and (e) the loan is to be secured by the existing mortgage. 16 Security substitution A residential mortgage loan is to be used for security substitution if— (a) the deposit taker is already a mortgagee of an owner-occupied residential property; and (b) the existing mortgage is to be replaced with a mortgage over another owner￾occupied residential property (the new residential mortgage); and (c) the borrowing party is either currently occupying or has occupied the owner￾occupied residential property with the existing mortgage within 6 months of the date of the new residential mortgage loan commitment date; and (d) the credit provided under the loan does not exceed the sum of— (i) the unpaid balance of the existing mortgage at the time of discharge or the property value of the replacement property, whichever is less; and (ii) an amount the deposit taker is reasonably satisfied is to be used for incidental or ancillary costs, such as the payment of legal expenses.
Part 3
Loan-to-value and debt-to-income ratios
Loan-to-value ratio
17 Requirement to determine loan-to-value ratio When determining whether a borrowing party qualifies for a residential mortgage loan, a deposit taker must, if practicable in the circumstances, determine the loan-to-value ratio. Debt-to-income ratio 18 Requirement to determine debt-to-income ratio When determining whether a borrowing party qualifies for a residential mortgage loan, a deposit taker must, if practicable in the circumstances, determine the borrowing party's debt-to-income ratio. 19 Debt-to-income ratio (1) A borrowing party's debt-to-income ratio is the ratio, expressed as a quotient, of the borrowing party's debt to the borrowing party's income.

(2) A deposit taker must make reasonable inquiries to enable the deposit taker to calculate a borrowing party's debt and a borrowing party's income for the purposes of determining the borrowing party's debt-to-income ratio. 20 Calculation of debt (1) A deposit taker must include in its calculation of a person's debt the following as at the day of calculation:
(a) the loan value of the residential mortgage loan the person is seeking to enter into:
(b) the credit limit of any revolving credit contract under which the person is a debtor:
(c) the unpaid balance of any of the following credit contracts, other than a revolving credit contract, under which the person is a debtor:
(i) a personal loan:
(ii) a student loan:
(iii) a residential mortgage loan:
(d) any other debt that, in the opinion of the deposit taker, may affect the person's ability to meet their obligations under the residential mortgage loan. (2) A deposit taker may exclude the following from its calculation of a person's debt:
(a) the unpaid balance of a BNPL contract:
(b) business debt:
(c) equity release in relation to a residential mortgage loan:
(d) the unpaid balance of a credit contract under which— (i) no fees or charges, including interest charges, are or may be payable; and (ii) no principal is, or may be, repayable before the last amount to be paid under the residential mortgage loan, that the person is seeking to enter into, becomes payable:
(e) subject to a limit of $5,000, any combination of the following:
(i) the credit limit of a revolving credit contract if it is $1,000 or less:
(ii) the unpaid balance of a credit contract if it is $1,000 or less. (3) If it is not practicable in the circumstances for a deposit taker to separate a person's business debt from their personal debt, then the deposit taker may— (a) when calculating the debt-to-income ratio,— (i) include the amount of the person's business debt in the person's debt; and (ii) include the amount of the person's business income in the person's income; and (iii) not include in the person's income the corresponding amount of business surplus calculated under clause 22; or (b) for the purposes of Part 4, treat the person as a person for whom the deposit taker has not determined a debt-to-income ratio.

(4) In subclause (3), the business income of the person means— (a) the amount of net profit of the business plus depreciation; and (b) any interest payable by the business in relation to the business debt. (5) In subclause (4), when the business has more than 1 shareholder, the amount referred to in paragraph (a) must be apportioned according to each shareholder's equity share. 21 Calculation of income A deposit taker may include only the following in its calculation of a person's income:
(a) the person’s income in the year preceding the day of calculation that can reasonably be expected to reoccur according to the deposit taker's standard lending assessment process including the following:
(i) business surplus calculated in accordance with clause 22:
(ii) wages and salaries:
(iii) rental income based on the actual rent for properties that are currently rented:
(iv) boarder income:
(v) superannuation and other government benefits:
(vi) investment income:
(vii) foreign income:
(b) additional income for the year beginning on the day of calculation if it is any of the following and is acceptable according to the deposit taker's standing lending assessment process:
(i) income the person has a right to receive (for example, an increase in the wages to which the person is entitled):
(ii) rental income the person reasonably expects to receive from a property investment RML:
(iii) additional boarder income the person reasonably expects to receive. 22 Calculation of business surplus (1) A person's business surplus is the amount calculated as follows:
(a) the amount of net profit:
(b) less payments of the principal of the business debt:
(c) plus depreciation.
(2) If a business has multiple shareholders, then the amount calculated under subclause (1) must be apportioned according to each shareholder's equity share.

Part 4
Lending restrictions
23 Restrictions by licence condition
(1) A condition of a deposit taker's licence may restrict the deposit taker's lending for residential mortgage loans if the credit is to be used for ordinary finance. (2) The licence condition may specify any of the following:
(a) a limit on the percentage of qualifying credit that a deposit taker may provide to— (i) a borrowing party with a debt-to-income ratio exceeding a specified ratio; and (ii) a borrowing party for whom the deposit taker has not determined a debt-to￾income ratio:
(b) a limit on the percentage of qualifying credit that a deposit taker may provide under loans with a loan-to-value ratio exceeding a specified ratio (subject to clause 26) to— (i) a borrowing party with a loan-to-value ratio exceeding a specified ratio; and (ii) a borrowing party for whom the deposit taker has not determined a loan-to￾value ratio:
(c) a class of residential mortgage loan to which a limit applies:
(d) a measurement period for which a limit applies.
(3) A specified limit must not exceed 30%.
(4) A specified ratio must not be,—
(a) in the case of a debt-to-income ratio, less than 5 or more than 8; or (b) in the case of a loan-to-value ratio, less than 60% or more than 90%. (5) A specified class must be 1 or both of the following:
(a) property investment RML:
(b) non-property investment RML.
(6) A specified measurement period—
(a) must be 3 or 6 months beginning on the first day of any month (which may be the date on which a specified limit applies); and (b) may continue indefinitely in periods of 3 or 6 months, with each subsequent measurement period beginning 1 month after the previous measurement period. 24 Calculation of qualifying credit under this Part (1) A deposit taker must include only the following in its calculation of qualifying credit under clauses 25 and 26:

(a) the loan value of a residential mortgage loan that the deposit taker or a subsidiary entered into during the measurement period:
(b) any increase during the measurement period in the loan value of a residential mortgage loan that the deposit taker or a subsidiary entered into before the measurement period. (2) Despite subclause (1), a deposit taker must not include a residential mortgage loan in its qualifying credit if the credit is to be used for equity release. 25 Calculation of qualifying credit for limit relating to debt-to-income ratio (1) In the case of a limit under clause 23(2)(a) that applies to property investment RML, a deposit taker must include a residential mortgage loan only if 1 or more of the following apply:
(a) the credit is to be used for ordinary finance:
(b) the borrowing party does not exceed the specified debt-to-income ratio:
(c) the deposit taker has not determined the borrowing party's debt-to-income ratio. (2) In the case of a limit under clause 23(2)(a) that applies to non-property investment RML, a deposit taker must include a residential mortgage loan only if 1 or more of the following apply:
(a) the credit is to be used for ordinary finance:
(b) the borrowing party does not exceed the specified debt-to-income ratio:
(c) the deposit taker has not determined the borrowing party's debt-to-income ratio. 26 Calculation of qualifying credit for limit relating to loan-to-value ratio (1) In the case of a limit under clause 23(2)(b) that applies to a property investment RML, a deposit taker must include a residential mortgage loan only if 1 or more of the following apply:
(a) in the case of a loan solely secured over investment property, the credit is to be used for ordinary finance:
(b) in the case of a loan secured by a mortgage over both investment property and owner-occupied residential property that exceeds the loan-to-value ratio applicable under clause 27, the credit is to be used for ordinary finance:
(c) the loan does not exceed the specified loan-to-value ratio:
(d) the deposit taker has not determined the loan-to-value ratio.
(2) In the case of a limit under clause 23(2)(b) that applies to a non-property investment RML, a deposit taker must include a residential mortgage loan only if 1 or more of the following apply:
(a) the credit is to be used for ordinary finance:
(b) the credit does not exceed the specified loan-to-value ratio:
(c) the deposit taker has not determined the loan-to-value ratio.

27 Loan-to-value ratio applicable in certain circumstances (1) This clause applies if— (a) a limit under clause 23(2)(b) is specified in relation to property investment RML; and (b) a property investment RML is to be secured by a mortgage over both investment property and owner-occupied residential property. (2) The ratio that applies to the loan is the solution of the following rounded to 2 decimal places:
𝑖𝑝𝑟 ×
𝑖𝑝𝑣
𝑖𝑝𝑣 + 𝑜𝑝𝑣

• 𝑜𝑝𝑟 ×
  𝑜𝑝𝑣
  𝑖𝑝𝑣 + 𝑜𝑝𝑣
  Where— ipr is the specified loan-to-value ratio, expressed as a decimal, for property investment RML ipv is the property value of the investment property opr is the specified loan-to-value ratio, expressed as a decimal, for non-property investment RML opv is the property value of the owner-occupied residential property. Made at Wellington on [day month year]. Reserve Bank of New Zealand Explanatory note This note is not part of the standard but is intended to indicate its general effect. This standard comes into force on 1 December 2028. The standard is issued under section 72 of the Deposit Takers Act 2023 (the Act) and prescribes matters relating to a deposit taker's business of lending money, as contemplated by section 82 of the Act. The standard applies to deposit takers if it is a condition of their licence that this standard applies. The standard requires deposit takers to apply certain criteria when determining whether a person qualifies for a residential mortgage loan.

First, a deposit taker must determine the nature of the security by deciding whether the mortgage securing the loan is over a residential property that is not an owner-occupied residential property, an investment property, or both. The deposit taker must then consider the nature of the lending for which the credit is to be used. The standard lists the categories of lending that must be considered and provides definitions of each of the types of lending. The deposit taker must then determine the loan-to-value ratio and debt-to-income ratio if practicable in the circumstances. The loan-to-value ratio is calculated in accordance with the definition of loan-to-value set out in clause 3. The loan may be secured over owner-occupied residential property, or investment property, or both. The debt-to-income ratio is the ratio, expressed as a quotient, of the borrowing party's debt to the borrowing party's income. A deposit taker must make reasonable enquiries when calculating the borrowing party's debt and income to determine their debt-to-income ratio. The standard lists what must be included when calculating a person's debt and what may be excluded. When calculating a person's income, a deposit taker may only include certain types of income, which are set out in the standard. The standard provides that a condition of a deposit taker's licence may restrict the deposit taker's lending for residential mortgage loans and sets out the limits that a licence condition may specify. These limits relate to the following:

• the percentage of qualifying credit that a deposit taker may provide to a borrowing
  party with a debt-to-income ratio exceeding a specified ratio or for whom the deposit taker has not determined a debt-to-income ratio, or under loans with a loan-to-value ratio exceeding a specified ratio:
• a class of residential mortgage loans relating to property investment RML or non￾property investment RML:
• a measurement period that must be 3 or 6 months and may continue indefinitely in
  periods of 3 or 6 months.
  The standard provides for an amount of qualifying credit and how to calculate it. The type of credit limit that is allowed to be included in a deposit taker's calculation is limited to—
• the loan value of a residential mortgage loan that the deposit taker or a subsidiary
  entered into during the measurement period; and
• any increase during the measurement period in the loan value of a residential
  mortgage loan that the deposit taker or a subsidiary entered into before the measurement period. In relation to a loan-to-value ratio where there is a limit on the percentage of qualifying credit that a deposit taker may provide and the loan is to be secured by a mortgage over both investment property and owner-occupied residential property, a different calculation of the loan-to-value ratio applies. This is secondary legislation issued under the authority of the Legislation Act 2019. Title Deposit Takers (Lending) Standard 2027

Principal or amendment Principal
Consolidated version No
Empowering Act and provisions Deposit Takers Act 2023
Section 72
Replacement empowering Act and provisions
Not applicable
Maker name Reserve Bank of New Zealand
Administering agency Reserve Bank of New Zealand Date made [day month year] Publication date Click or tap to enter a date Notification date Click or tap to enter a date [Insert date notified. If there is no requirement to notify, state "Not applicable"] Commencement date 1 December 2028 End date (when applicable) Click or tap to enter a date [Insert the date the legislation was or will be revoked. If the legislation has some form of self-revocation or expiry, this date can be inserted when the instrument is first published. In other cases, insert "Not applicable" until the date is known] Consolidation as at date Not applicable Related instruments Not applicable