tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Thursday, March 28th, 10:13PM

Mortgages

rss
Latest Headlines

Staunch opposition to DTI proposal

Opposition to the inclusion of debt-to-income ratios (DTIs) in the Reserve Bank’s macro prudential tool kit is widespread, the bank’s own consultation reveals.

Friday, November 24th 2017, 12:02PM

by Miriam Bell

The Reserve Bank has released the submissions it received on its public consultation on DTIs and the majority come down firmly against the proposal.

The NZ Bankers Association believes the Reserve Bank’s consultation paper does not establish that the benefits of a DTI would outweigh the costs and that more analysis is required.

It says DTIs might create a number of unintended consequences for the housing market and the economy and that there are sufficient serviceability rules and processes already in place to assess affordability and respond to market conditions.

The big banks’ submissions on the prospect of a DTI all support this view.

ANZ does not support a DTI tool believes the Reserve Bank’s existing macro prudential tools are sufficient.

It says that the DTI tool as proposed is fundamentally flawed as it is not a measure of affordability.

“It is an unsophisticated measure which does not take into account individual borrower characteristics like after-tax income, household costs, other outgoings and the interest rate environment.”

ANZ says lending practices are sufficiently strong in mitigating risk relating to rising interest rates and believes policies to ensure serviceability assessment are appropriate and robust.

“If serviceability restrictions are to be imposed, a serviceability framework based on interest rate sensitivity would provide more effective control over mortgage lending affordability and is more straightforward to implement and monitor.”

For ASB, the DTIs are a crude measure of affordability and unlikely to protect against borrower default risk due to rising interest rates or unemployment.

“We would never consider assessing a customers ability to service a loan based on a DTI alone.

“Rather we conduct comprehensive servicing assessments based in borrowers’ individual characteristics and apply servicing test rate buffers to ensure customers can meet repayment obligations at times of rising interest rates.”

ASB does not consider the Reserve Bank has adequately quantified what risk or the sort of DTI levels that would create a systemic risk that would require the addition of DTIs to the macro prudential tool kit.

“We believe it would be more appropriate for the Reserve Bank to play a larger role in benchmarking the servicing assessment processes of the banks to provide for system strength rather than continuing to pursue DTI restrictions.”

BNZ also described DTIs as a relatively crude measure of loan servicing capacity and says the deployment of such a tool should only occur when there is a compelling case for its use.

It says the Reserve Bank might wish to consider closer assessment of bank loan servicing calculations as a potential pre-cursor to the deployment of a DTI tool.

“It is likely these servicing calculations will be more accurate predictors of potential stress than DTI measures which are ‘blunter’ instruments.

“Through its prudential oversight activity, RBNZ may be able to achieve the intended outcomes, but via a process that is arguably more accurate and easier for banks to deploy.”

Westpac says that, in isolation, a DTI is not a suitable calculation for the assessment and approval of credit risk.

“If DTIs are introduced, it is important that the policy is clear and not overly complex so that it can be understood by both borrowers and lenders.”

In response to the submissions, the Reserve Bank reiterated that it does not believe DTI restrictions should be deployed in the current housing market environment.

It says it considers that the key longer term solution to housing market imbalances is to facilitate growth in housing supply in areas that need it.

“However, the Reserve Bank remains of the view that individual bank lending decisions may fail to take account of their impact on systemic risk during periods of intense competition for mortgage loans, and that there can be a role for limits on banks’ serviceability practices during these periods.”

The Reserve Bank’s memorandum of understanding with the Minister of Finance is due to be reviewed in May 2018 and it thinks the potential future use of DTIs could be reconsidered as part of that wider review.

Read more:

DTIs would cut thousands out of the market

DTIs perversely restrictive for investors 

Tags: ANZ ASB BNZ DTIs Macro Prudential Tools RBNZ Reserve Bank Westpac

« Digital threat to mortgage advisersANZ names new chief economist »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
Subscribe Now

Mortgage Rates Newsletter

Daily Weekly

Previous News
Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 28 March 2024 9:42am

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com