Debt-to-Income – RBNZ

Debt-to-Income Restrictions

The Reserve Bank’s consultation paper, Serviceability Restrictions as a Potential Macroprudential Tool in New Zealand, states that restricting the debt-to-income (DTI) ratio of some mortgage borrowers could prevent approx. 10,000 borrowers from buying a house, reduce house sales volumes by approx. 9%, reduce house prices and credit growth by 2-5%, and shave around $260 million off NZ’s GDP.

Banks already impose their own debt-to-income (DTI) restrictions when processing applications. The Reserve Bank would be unnecessarily adding further restrictions making it harder for borrowers, including both property investors and owner-occupiers. According to RBNZ, this DTI tool would be in the form of a limit on the total debt of the borrower against their gross income, effectively placing a ‘speed-limit’ similar to the LVR restrictions already imposed on mortgage lending.

The banks’ DTI restrictions should be sufficient – the Reserve Bank instead should be lifting LVR restrictions, particularly in Christchurch where the market is stable. These ‘speed-limits’ are not needed in the Christchurch market. If you’re confused at where these changes could leave you in the future, contact us today to review your position and discuss your financial goals.

Read the full article from here




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