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Prospect of DTIs looms larger

Controversial debt-to-income ratios (DTIs) have moved a step closer.

Tuesday, October 25th 2016, 1:29PM

by Miriam Bell

It emerged today that the Reserve Bank has formally asked the government to allow it to add DTIs for residential mortgage borrowers into its existing suite of macro-prudential tools.

A spokesman for Finance Minister Bill English confirmed to media that a request has been made, but said the minister has asked for more information before the government made a decision.

Debt-to-income ratios would work by setting a rule for the amount that banks can lend to borrowers based on their income.

For example, England has a ratio of 4.5 (four and a half times the borrower’s income) while Ireland has a ratio of 3.5.

Veteran property investor Olly Newland said that if DTIs are actually introduced the impact could be huge.

They would have a very strong effect on the market and would spell the beginning of the end for the current property boom, he said.

“A definite flattening out of the market would be the result. It may not lead to a massive crash, but there would be a strong dent in demand.

“DTIs would spell disaster for property speculators and also, potentially, builders and developers.”

Any DTIs would have to allow for Auckland’s significantly higher prices and have a higher ratio for Auckland buyers as compared to buyers elsewhere in the country, Newland said.

But he added that nothing concrete has happened yet.  “This could well be more of a warning shot across the bows from the Reserve Bank.”

Massey University banking expert David Tripe also said anything to do with DTIs was largely speculation at this stage.

He said the introduction of DTIs was unlikely to happen quickly as it would take some time to work out the details.

This is because there is currently no degree of consistency around the relevant information collected, he said.

“How any DTIs play out will depend on the level that they are set at and how the measures are constructed. Those are the relevant factors.”

Any DTIs are likely to be set in such a way as to reduce pressure on the housing market, Tripe said.

“My guess is that that Reserve Bank will be looking to do it in a way which will get some slowdown in the rate of house price appreciation and related debt accumulation.

“But the question is how much of an impact is likely? It is very hard to tell because it comes down to what parameters are set.”

It is highly uncertain as to how it will all end up in a practical sense, he said.

The possibility that DTIs for residential property owners could be introduced was first raised by the Reserve Bank last year.

With the release of its Financial Stability Report in May this year, Reserve Bank governor Graeme Wheeler confirmed that DTIs were “seriously being considered”.

Today’s announcement makes it clear that the Reserve Bank is keen to have the option of introducing DTIs at its disposal.

However, many commentators have warned the introduction of DTIs could do the property market more harm than good.

In particular, it has been pointed out that any such policy could have a major impact on both new housing supply and first home buyers.

Tags: banks Lending Macro Prudential Tools mortgages RBNZ Reserve Bank

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 3.19 3.19 3.49
AIA Special - 2.69 2.69 2.99
ANZ 4.44 3.15 3.25 ▼3.39
ANZ Special - ▼2.55 ▼2.69 ▼2.79
ASB Bank 4.45 3.19 3.19 3.49
ASB Bank Special - 2.69 2.69 2.99
Bluestone ▼3.49 ▼3.49 ▼3.49 ▼3.49
BNZ - Classic - ▼2.55 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.25 3.29 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union South 5.65 4.75 4.75 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.60 2.65 2.80
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 3.99 2.58 2.68 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.40 3.54 4.00
Kiwibank - Capped - - - -
Kiwibank - Offset - - - -
Kiwibank Special 3.40 2.65 2.79 3.25
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.29 3.19 3.49
SBS Bank Special - 2.79 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 ▼2.69 ▼2.75 ▼2.99
The Co-operative Bank - Standard 4.40 ▼3.19 ▼3.25 ▼3.49
TSB Bank 5.34 ▼3.35 3.49 3.79
TSB Special 4.54 ▼2.55 2.69 2.99
Wairarapa Building Society 4.99 3.75 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.55 2.69 2.79
Median 4.55 3.19 3.22 3.39

Last updated: 13 July 2020 7:38am

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