The DTIs are here.
The Reserve Bank (RBNZ) has confirmed "activation" of the new debt-to-income (DTI) restrictions, along with the related loosening of loan to value ratio (LVR) limits.
The new DTI restrictions will create limits on the amount of high-DTI lending that banks can make (i.e. where the borrower has taken on a high amount of debt relative to their gross, or pre-tax, income). LVR restrictions limit the amount of low-deposit lending that they can make.
Banks will need to comply with the new DTI and LVR restrictions from July 1, 2024. The RBNZ says the restrictions will apply to new lending for residential properties in New Zealand, for both owner-occupiers and investors. Banks have previously been given 12 months to prepare their systems for the possible implementation of DTI restrictions.
Following a final round of public consultation earlier this year, the RBNZ had earlier indicated it would be ready to push the go button by "the middle of this year".
And so, now it is all go.
These are the new limits the banks will have to adhere to:
- 20% of new owner-occupier lending to borrowers with a DTI ratio over 6; and
- 20% of new investor lending to borrowers with a DTI ratio over 7.
LVRs will be eased to allow banks to make:
- 20% of owner-occupier lending to borrowers with an LVR greater than 80%; and
- 5% of investor lending to borrowers with an LVR greater than 70%.
The current LVR settings are:
- 15% limit for loans with LVR above 80% for owner occupiers, and
- 5% limit for loans with LVR above 65% for investors.
These LVR limits will continue to apply until the new settings come into effect on July 1, 2024.
The low-key announcement from the RBNZ on Tuesday follows what's actually been a very lengthy and at times, agonising, process for the central bank, which has expressed interest in having a DTI measure since at least 2016 but has been subjected to a variety of delays. This has included push-back by both the previous National-led and then the Labour-led governments.
The RBNZ has previously said that the introductory DTI settings will be 'non-binding', given the current conditions in the mortgage market.
As previously reported, The latest quarterly figures released by the RBNZ, these for the March quarter, show at the moment the numbers of new mortgages being approved on high DTIs are well below the proposed limits.
That, of course, could and likely would change in the next housing market upturn - and it's not so long ago that the numbers of new mortgages on high DTIs was rocketing. So, that's when the DTI limits would really come into play.
As said above, the RBNZ has hankered for some years for a DTI measure to add to its 'macro-prudential toolkit' alongside such already well-used measures such as the loan to value ratio (LVR).
In a statement announcing introduction of the new limits, RBNZ Deputy Governor Christian Hawkesby said DTIs and LVRs are complementary.
"LVRs target the impact of defaults by reducing the amount of potential losses in the event of a housing down-turn, while DTIs reduce the probability of default by targeting the ability of borrowers to continue to repay debt. Both act as guardrails reducing the build-up of high-risk lending in the system," he said.
"Having both the DTI and LVR restrictions in place means we can better focus them on the risks that they are designed for while achieving the same or better overall level of resilience in the financial system. Therefore, activating DTIs means that we can ease LVR settings too."
The RBNZ says all banks will have an initial six-month measurement window to calculate whether their lending is within the DTI restrictions, to ensure a smooth introduction of the DTI rules.
131 Comments
Good move from RBNZ…….. There are people about who need protecting from their own worst excesses.
Worse still, they do harm to others. The ripple effects spread far and wide.
Thus, DTIs are in the best interests of maintaining economic stability.
Well done, Governor Orr. [Edited since original post.]
TTP
Calling BS on that "Taking The P*ss" .....you have been crowing on here for years "ANYTIME is a GREAT TIME to BUY" as you can "never lose" and everything will double in 10 years crap ! ...while trying to belittle people with your ignorant, arrogant "know all" tones, which are just PURELY for the benefit of your own pocket
You are utterly and completely duplicitous and have now jumped ship, now that the SHTF with property, saying these moves will save people from their own "excesses" - which were just those excesses you were raving on about on here for years !
Cash flow taps been turned off buddy ....
This highly vested Chameleon cannot be trusted.
He frequently panned those who advocated using high interest TD's as a savings vehicle to a more secure home ownership. All he did was actively twist it all around to suggest TD's were being promoted by DGM as an alternative to home ownership.
DGM's will never own homes eh - TTP?
by tothepoint | 3rd Sep 21, 8:39pm - "NZ house prices are increasing - on a sustainable long-term trajectory"
by tothepoint | 27th Aug 21, 10:22am
"Better to have an "eye-watering amount of debt" at a young age - than an old age.
We can't blame younger people for seeking a foothold on the housing ladder. The sooner they do so, the better"
Edit
Complete rubbish to the people above.
I have run a lengthy campaign in this blog about the perils of over-indebtedness and living beyond one's financial means. My views are very well known by readers here.
Many here will recall my posts during the low interest rate period of 2020/21. It was me who red-flagged the risk of becoming "intoxicated with cheap money" and emphasised that people bogged down with (mortgage) debt would inevitably "hit the wall at speed" (my exact words).
By all means, invest prudently in property (which has a strong long-term track-record) but I have never condoned borrowing beyond one's ability to service debt. Getting "donkey-deep in debt" (my words again) is a state best avoided.
Retired-Poppy and Crazy Horse are both well aware of my entrenched position on over-indebtedness.
TTP
For investors it was always income and lvr that would create a blocker to the next Investment.
Time eliminates lvr once you have a few properties.
The dti of 7 means 14.28% is the reserve banks safe return for investors.
If you buy a 1m property at 5% you could borrow 350k or lvr equalivent of 35%.
Even a 7% yield equates to ab lvr of 49%.
To get to the new lvt limit of 70% you need a yield of 10%
This initiative would have been even better if it had been applied before the loose monetary policies that hurt us over Covid
Like here?
This was the decision where the current situation could have been avoided.
People have forgotten about this decision which has had unintended consequences
https://www.interest.co.nz/property/85201/reserve-bank-confirms-meeting…
But he has suggested that the Government's decision around giving the central bank debt-to-income (DTI) restriction powers is a political one, as it might adversely impact first home buyers.
"It comes down to a political decision around whether they [the Government] are willing, or not, to provide those tools and accept some of the challenges that may bring," Orr told media this morning.
https://www.nzherald.co.nz/nz/reserve-bank-boss-adrian-orr-warns-mps-of…
Both act as guardrails reducing the build-up of high-risk lending in the system
The RBNZ has previously said that the introductory DTI settings will be 'non-binding', given the current conditions in the mortgage market.
The property market is still completely cooked, so how can these be both non-binding and guardrails? The guardrails have been installed halfway down the cliff.
Hijacking the conversation as I have two questions:
- Is the "max 20% of new loans with a higher LVR / DTI than..." usually referring to number of loans or total value of the loans?
- Is it calculated quarterly or how? Strictly quarterly / rolling monthly window, etc.?
Sorry, appealing to any of you if knowledgeable before digging in the docs myself
- edit - from another source: value of loans, reported monthly
Now perhaps property prices will have to represent "true & fair" value to the economy ....instead of holding the country to "economic ransom"
Also from above ...."RB ....which has expressed interest in having a DTI measure since at least 2016 but has been subjected to a variety of delays" ...makes me wonder how much "lobbying" was going on between the "big 4" banksters and said governments .... ???
It is basically a battle with the RB trying to do the best for the NZ economy vs. the "Banksters" and the veracious greed to extract as much cash from the people ....and even the government. So these grasping vultures are always in profit, no matter what the economic conditions are.
And we all wonder why NZ is behind the 8 ball ....
Suspect you’re right, and well done to RB for getting this over the line. Obviously previous governments of all colours were pushing back also. Personally I’d rather see the multiples slightly lower but this is a good start and they can tweak settings as things evolve.
I can't fully congratulate them. Dropping LVR restrictions in 2020 and encouraging as much lending as possible for residential housing via the FLP is essentially what gave us the peak market we saw, which is why they're introducing the DTI limits now to prevent the same peaks happening AGAIN. We would have been in far better of an economic condition by now if they hadn't fuelled this peak, so to me, while these are necessary and should always have been really, it is more of an attempt for them to correct their previous mistakes.
Judging by current sales out there, doesn't seem like this will change much currently. Though would prevent that covid era bull run creeping up again. Good riddance.
I do wonder though, a lot of talk about DTI over the last couple of years and very little talk about changes in banking capital requirements. The latter likely to have a greater impact on bank lending in the future. 6x income for OO is pushing into silly territory IMO.
"6x income for OO is pushing into silly territory IMO."
For lower income families with kids and with little free disposable income, maybe.
For a DINKY couple earning over $300k per year? No.
Just quietly anyone - irrespective of income levels - going over 4 needs their heads read (unless buying for a quick capital gain. i.e. bring back the 10 year Brightline!)
Hopefully that is the case. With DTI of 6 and LVR limit of 80%, the average price to income of houses will hopefully be capped around 7.5, compared to around 7 at present (see https://www.interest.co.nz/property/house-price-income-multiples)
"With DTI of 6 and LVR limit of 80%, the average price to income of houses will hopefully be capped around 7.5, compared to around 7 at present"
Not for buying by non owner occupier buying syndicates, or those with access to the bank of mum and dad.
Stamp duty measures similar to those in Singapore would address non owner occupier buying syndicates.
My neighbour is renting his investment house and recently increased the price he's asking due to insurance/cost of living increases. Renters are going to pay big time for everything and I would expect the rent to be increased additional 20-30% in the upcoming year.
Renters are going to pay big time for everything ..... are you sure ? as 2 things will have to happen to your neighbour - he will either keep his rent where it is OR the kicker where if the rent goes up, they will just cram more into the house ...and there will be nothing he can do to stop them.
Good luck proving it. Assume 8 people crammed into a 1 bedroom rental won't all have king sized beds, probably a mattress on the floor each. 48 hours notice for a rental inspection, throw the mattresses/tooth brushes etc into the van and drive off site for the day.
Also, there comes a point where it's just not financially possible for anybody to afford a place within the occupancy limits, and the landlord must relax those if they want to tenant the place.
8 people in a 1 bedroom might be a bit extreme (although I bet it does happen) but if you look at how student rentals have typically always worked - higher occupancy with singles/couples sharing a room, e.g. not uncommon to have 6 occupants in a 3 bedroom house - it has typically allowed for higher rents than a normal family/couple would pay. My experience as a student was landlords would always turn a blind eye as long as the rent was paid on time. Basically just make sure you tidy the place before inspection and you could have an entire rugby team dossing down and the LL wouldn't give a rats.
I commented the other day that I walk frequently past the townhouse I used to rent near Chch CBD and (just my wife and I in a 3 bedroom) and it is very clear that there are many more occupants in there now. I reckon at least 8 people who I'd assume are recent arrivals to the country.
Interesting article about the BOP rental market today. Renters are at their limit already.
“Landlords are trying to increase prices, but without the demand, the listings are sitting on site for longer. This is leaving a large backlog of more expensive listings hanging around on site, which is pushing that median rent up."
https://www.nzherald.co.nz/rotorua-daily-post/news/bay-of-plenty-averag…
Yep for homeowners it pretty tough at the moment but they still have options like going interest only, mortgage holidays etc. For renters if the income isn't there it's not there, cant get blood from a stone. Landlords can try squeeze as hard as they want but at some point something will break. And the reality is that house prices have been so far removed from yield that even with heavy rent increases investors will likely still be cashflow negative if they are highly leveraged.
cant get blood from a stone
Hit that nail on its head there.
Rental prices may soon start to fall. those that want decent tenants and can afford a drop in income (those with enough equity) will do so. those that cant will end up fighting over the dregs with many people per house.
Surely its the only likely scenario because we know our smartest young to mid aged kids are going over the ditch in big numbers. and the immigrants are low skilled.
Fair point.
Poor people are always whinging about stuff like food and heating. Must be frustrating for landlords to keep interupting their exotic holidays to answer questions like that... they need rent increases to cover some of the inflation on cocktails.
Another solution would be for the government to close some public hospitals and use the money to increase accom supplements so renters can pay landlords even more.
You are on to it OSE ! ....
...Another solution would be for the government to close some public hospitals and use the money to increase accom supplements so renters can pay landlords even more.
And why don't we start charging in full, for those remaining hospital services - and we'd have even more money for the accom supplement ! and landlords could virtually charge what they like, for any property, as the govt will ALWAYS top it up....and the "kind" landlords would "be alright Jack", as they would have enough money to cover their hospital care,
What would happen then, is a city like Auckland will rapidly turn into a 3rd world place where no one really wants to be ......... sound a bit familiar ??? .........this great NZ property "debacle" has just turned into a ridiculous "greed-fest" for a small group of people.
Ignorance and greed have no bounds .....
Spot on. Just highlights from yet another perspective how overpriced NZ houses really are. And without prospect (dream) of large capital gain due to DTIs how many landlords are going to finally wake up and realise that indefinite negative cashflow just ain’t worth it…
If a landlord tried a 30% rent increase in one go, the tenants could take them to the tenancy tribunal to challenge this claiming excessive increase, which they may well win, depending on the base rent. Naturally, this is to prevent a landlord offloading all risk and increases on the tenant, and for good reason. 30% would be a $195 increase on a place already renting for $650.
They'll struggle to challenge an excess increase in rent, if the increase brings inline with market rent.
E.g. if they were renting a 4 bedroom house for $150 per week and then landlord jacked it up to $450 per week, and the market rent was $500, the tenant wouldn't have a leg to stand on.
Effectively less property speculators/investors will be able to use their properties as an ATM to borrow and buy more for their portfolio. Those with a portfolio which is already sufficiently paid off will, as always, continue creaming it, however my take is that it is put in place to lower the risk of another FOMO frenzy reaching a silly peak like 2020-2021 again where investors could outbid FHB's by using one of their properties as an ATM to borrow on the equity, which the FHB of course doesn't have the luxury of. I can't personally foresee a huge impact on prices, as a greater portion of property investors are not buying at present as it doesn't make financial sense to do so with current prices and interest rates making the yield not worth, therefore prices still have yet to fall before they can and will enter the market as a greater share.
Likely small at the moment, as RBNZ themselves have stated that they wouldn't currently be binding with the amount of current lending at these DTIs (which seems to make sense given this data series they publish - https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/residen…).
What's a bit interesting to me, however, is if we look back to March 2022 in some of the tables, it certainly suggests these limits would be binding back then throughout periods of lower interest rates - perhaps this means that even if interest rates were to fall, they wouldn't lend the same level of support the house prices as many currently suggest.
Then, there's always the possibility that RBNZ ratchets these down over time (or on the flipside, perhaps they'll remove / lighten up on them as they did with LVRs during the Covid times to stimulate things through some housing wealth effect).
It seems that it took the US administration and agencies quicker to approve ETFs for the ol' rat poison and Ethereum, despite fierce opposition from the ruling elite and the likes of Jamie Dimon.
How do they think these DTIs support the Ponzi in any way? Enlighten me.
Possibly. I think the RBNZ would happily watch the market deflate further as to not pose a financial stability risk, especially if you can keep nominal prices fairly static while real prices decline over a period of time. But we could also see the political class bend to the those who need one last pump to liquidate before retirement. Demographics might be more important than some think.
I reckon this will be a case of the rich get richer and lower income earners are cut out of the market altogether.
Joint income of say $150,000 looking to buy a home to live in = max borrowing x 6 = $900,000
Richer individuals on $300,000 looking to buy investment properties = max borrowing x 7 = $2,100,000.
Hypothetically can effectively outbid and pay $1,050,000 on two investment properties.
Time will tell how this one plays out but, gentle readers, I doubt it is going to be how most people on this forum seem to expect.
What about the richer individuals who already have a mortgage and would like to leverage? Let's say they own a rental worth $600k, rent = $24k p.a. Assume their main house is worth $5m (plenty of equity).
DTI of 7: Total mortgages = $2.27m. Total income = $324k. They want to buy another $600k rental @ $24k p.a.
New income = $348k. DTI of 7 = $2.44m. Less their $2.27m existing = $170k. They're short $430k.
Valid. But, I would imagine this borrower would be ripe to be allowed to borrow over x7 due to the over $3m equity available and security over their main house that the bank would already have. Lower income earners, including first home buyers, are unlikely to be able to offer lenders that same security, so I would imagine would be less likely to go above the threshold DTI of x6 or x7.
So the $2m inner city rat hole rented for $950 per week can only have $345k of debt and the rest must be equity....aka real tax paid cash. Ok for those that purchased it twenty years ago for $345k, but otherwise a how is this not a nuclear strike against leveraged speculation....?
1) What is the gross rental yield on your residence?
2) Would renting be cheaper than owning the apartment using an 80% LVR mortgage at 7% P&I mortgage to puchase at the current market value?
As a renter, you don't need to pay rates, insurance and maintenance which is at least 2,000 per year.
We wish. the inevitable will happen over time. Government and RBNZ leadership will change, a boom will come. Everyone will forget the downturn and house price bubble... we will all want for silly growth again.. So Banks will lobby for a more relaxed DTI.. and eventually it will be scrapped. 15 years from now we will be back where we are now.
Humans cant help themselves. But for the next couple of years it will help get prices back in their box
At DTI of 6? Doubt it. At current interest rates and a DTI of 6, 44% of your gross income is going towards the mortgage. Even at 5% interest, 38.9% income goes towards the mortgage. People should not be borrowing these amounts, especially at low income. To suggest they should be borrowing more and this is "restrictive" is insane.
A wage earning couple borrowing at DTI of 6 are spending 67% of their net income on the mortgage. On a house that expensive, after rates insurance and maintenance are left with 15% of their gross income to spend on food, utilities, life. Kids? Forget it.
What do you think this does to our local economy?
Edit: original comment was that DTI will impact lower wage earners most.
Ireland has DTIs of 4.0 gross income for FHB and 3.5 of gross for everyone else, along with LVR of 10% for OO and 30% for landlords. These were brought in after their ponzi collapsed in similar fashion in 2007. Prices have been relatively stable since, although there has been a serious housing shortage due to large immigration.
Our incoming DTIs of 6 and 7 are too high but better than nothing.
https://www.centralbank.ie/consumer-hub/explainers/what-are-the-mortgag…
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