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PM rules out DTI ratio idea

Prime Minister Bill English has ruled out allowing the Reserve Bank to bring in debt-to-income ratios. It had suggested limiting loans to no more than five times borrowers’ incomes.

Wednesday, August 16th 2017, 6:00AM

by Susan Edmunds

But English has indicated that is no longer an option - and suggested it could be time to come up with a plan for how it would roll back loan-to-value restrictions, too.

He told media that while the LVRs were a matter for the Reserve Bank, it might be time to think about what economic conditions might allow for their removal.

It was pretty clear that the LVR policy, along with other factors, had contributed to a flattening off of house prices and has taken some pressure out of the market, he said.

John Bolton, of Squirrel Mortgages, said there was a lack of liquidity in Auckland due to the significant drop in turnover.

He said DTIs were a blunt instrument that could have been expected to cause collateral damage.

He said such an instrument was not needed. “You’ve already got banks testing at 8%, they’re already doing the tightening for them.”

He said, for a $1 million mortgage, an income of $215,000 was needed to cover living costs and debt servicing – more than the DTI would have proposed.

Glen McLeod, of Edge Mortgages, said uncertainty around DTIs had been a concern for some brokers.

He agreed banks were using high interest rates to test serviceability. “The affordability is there.”

He said uncertainty about what the DTIs would have worked had been a concern to some brokers. "It concerned me looking at what clients would have been able to achieve. Now, when we're looking at servicing for people it's not just the second or third property they are buying, you've got to take into account the higher interest rate on the entire value of their debt."

Property Institute chief executive Ashley Church said English's call to take DTIs off the table was a sign that common sense was finally prevailing.

“DTIs would have been a draconian addition to an already over-regulated mortgage market and their introduction would effectively have locked first home buyers out of the market.”

Church also agreed with the Prime Minister’s suggestion there should be a timeframe for the removal of the LVRs because the property market has come off the boil.

“We can only hope that the incoming Reserve Bank Governor will take notice and exercise a more informed approach to the market.”

Meanwhile, Labour Party leader Jacinda Ardern said that Labour has never favoured the LVRs or the prospect of DTIs – although the Reserve Bank should have the ability to set and use macro-prudential tools.

Read more:

DTIs “perversely restrictive” for investors - report 

Call for LVR review as sales plunge 

Tags: banks DTIs interest rates John Bolton Lending LVR Macro Prudential Tools mortgages RBNZ regulation REINZ Reserve Bank Squirrel

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
Lender Flt 1yr 2yr 3yr
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 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
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 ▼3.85 ▼3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 ▼2.93 ▼3.07 ▼3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.45 2.99 3.35
SBS Bank 4.54 ▼3.05 3.19 ▼3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - ▼2.55 2.69 ▼2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 ▼2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 ▼3.29
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 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.05 3.13 3.12

Last updated: 11 August 2020 8:24am

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