About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   tmmonline.nz  |   landlords.co.nz
Last Article Uploaded: Friday, December 13th, 10:03PM
rss
Latest Headlines

Debt to income limits could slow down investors

The prospect of debt-to-income limits (DTIs) has been raised by recently released Treasury papers on the Reserve Bank’s LVR restrictions – and their introduction could put the brakes on some investors.

Wednesday, October 28th 2015, 10:09PM

by Miriam Bell

According to the Treasury papers, DTIs are an alternative macro-prudential tool that could offer an alternative, or additional, way of managing financial system vulnerability by targeting the likelihood of default.

DTIs can be difficult to implement in practice, which is why LVRs were chosen in 2013, the papers said.

“We welcome the RBNZ’s work on DTI data since then, and look forward to the developments in this area.”

Earlier this year, the RBNZ’s Bernard Hodgetts told media the bank was doing work on the debt-to-income ratios of residential property owners.

At the time, he said the RBNZ had no plans for any debt-to-income type measures – although it was trying to establish what might be possible in that area.

For investors, the introduction of DTIs could pose some problems.

Mortgage broker Campbell Hastie, from Go2Guys, said he is more of a fan of DTIs than of LVR restrictions.

This is because there are plenty of potential buyers out there who don’t have the necessary deposit, but who are fully capable of servicing a substantial mortgage.

However, for investors, DTI measures would assess part of their income as the rent they are getting from their properties and this could impact on their serviceability.

“Potentially, DTIs could restrict or restrain the activities of some investors,” he said.

“Many property owners in Auckland have a fair bit of equity now and might be a bit bullish. If you put an income test in front of them it could slow them down a bit.”

Infometrics managing director Gareth Kiernan said DTIs were another way to tackle the risks that could flow from Auckland’s housing market.

But he suspected it would probably be a more difficult policy to pursue [than LVR restrictions] when it comes to investors.

“How do you define the income of an investor? Some rental income would have to be taken into account. But, if they own multiple properties, how do you treat any other salary that they might earn?”

Kiernan said the policy could have a big impact on property owners who were heavily leveraged.

Applying DTIs to owner-occupiers would be easier, but they are still not as clear as LVR restrictions, he said.

“For this reason, the Reserve Bank might be doing some work on them, but they might be in the too-hard basket.”

At the coalface, it wouldn’t be too difficult for banks to implement DTIs when lending, Massey University banking expert David Tripe said.

“They would need to get the details of the borrowers’ income, as they do now, and they would include them as part of their calculations regarding the loan.”

Banks would need to make sure they were receiving the correct information and, as with any regulatory controls, there would be some practical challenges.

Tripe said that if a DTIs policy was pursued there would have to be precise rules around the way it was operated and the criteria employed to ensure there was no unfairness in assessment.

“But it is certainly not impossible. The possibility of introducing DTIs is being investigated in overseas jurisdictions. For example, Hong Kong is looking at them, as is the Bank of England.”

« Investors not as risky as RBNZ suggested - TreasuryCouncil committed to options not value cutting »

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

MORE NEWS»

Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 4.05 4.49
ANZ Special - 3.55 3.55 3.99
ASB Bank 5.20 3.89 4.05 4.39
ASB Bank Special - 3.39 3.55 3.89
BNZ - Classic - 3.49 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.54 3.54 3.69
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank ▼5.20 ▲4.20 4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▲3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.39 3.45 3.89
Sovereign 5.30 ▼3.89 ▼4.05 ▼4.39
Sovereign Special - ▼3.39 ▼3.55 ▼3.89
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.39 3.45 3.99
Median 5.34 3.99 4.07 4.39

Last updated: 9 December 2019 9:02am

News Quiz

The maximum remuneration model for Australian life insurance advisers is to be set at what?

Upfront 40% + trail 20%

Upfront 50% + trail 10%

Upfront 50% + trail 20%

Upfront 60% + trail 10%

Upfront 60% + trail 20%

MORE QUIZZES »

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