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DTIs still on the Reserve Bank’s radar

Almost half of Auckland first home buyers have mortgages that are over five times their annual income – and that makes debt-to-income (DTI) ratios a hot topic again.

Monday, August 12th 2019, 5:42PM 1 Comment

by Miriam Bell

For the first time today, the Reserve Bank released new mortgage data showing the total borrower debt compared to borrower income for owner occupiers and first home buyers.

And it shows that DTI levels for borrowers around New Zealand remain high.

While the Reserve Bank doesn’t have a threshold for when a DTI is considered high, it keeps a particularly close watch on new mortgage lending with a DTI of over five.

Nearly a third (31%) of borrowers nationwide took out mortgages with a DTI of over five in June 2019, while 33% of first home buyer had mortgage debt of over five.

In Auckland, almost half of first home buyer debt was at a DTI over five but first home buyers most commonly borrow between four to five times the size of their income.

But the Reserve Bank’s financial system policy head, Toby Fiennes, says that while the ratios remain high, they have actually reduced over the last two years.

Back in June 2017, 37% of borrowers nationwide had mortgage debt of over five while 35% of first home buyers did.

For this reason, Fiennes says that even if the Reserve Bank had a DTI tool in its macro-prudential toolkit – as it has long wanted – they would be very unlikely to use it now.

“The levels of DTIs are high, but not extraordinarily high. We would have to have a pretty sound reason for introducing restrictions into the market.”

While the Reserve Bank was worried about the levels a few years ago, there are other factors at play now, with the lower interest rate environment more supportive of higher DTIs, he says.

“But we are on the record as saying we would like to have a DTI tool in the toolbox and if we did, and the levels started trending upwards again, we would consider using it.”

The second phase of the review into the Reserve Bank Act will be looking at its macro-prudential toolkit and DTIs are a part of that.

Consultation on phase two of the review is closing at the end of this week and there are likely to be decisions on key issues raised later this year, Fiennes adds.

Despite this drive towards a DTI tool, today’s release of the new DTI data, which the Reserve Bank has been collecting for several years, is not intended to push Government on the issue.

“It just happens that now is the time when we have enough confidence in the data and we feel we can put it out there.”

The DTI data is based on banks’ summary data of the debt and income of their new mortgage customers.

Reserve Bank head of data and statistics Steffi Schuster says it is intended to help the Reserve Bank better understand risks to financial stability from mortgage lending activity.

That’s because households with higher debt levels relative to their income may be more at risk of defaulting on mortgage repayments.

Also, borrowers with higher debt levels relative to their income are more likely to reduce spending in response to shocks, like a loss of income or higher interest rates.

Schuster says the DTI data can also help assess housing affordability for recent homebuyers and can be used with other information to gain richer insights into the housing market.

“For example, by comparing DTI figures with loan to valuation data, we can better understand risks from households with a combination of large loans relative to the value of their property, and large loans relative to their income.”

The Reserve Bank has now made monthly DTI data available from June 2017 onwards and, going forward, the data will be published quarterly.

Currently, the published DTI data does not include property investor data – although the Reserve Bank does collect it.

However, the Reserve Bank considers that DTIs are a less useful metric for property investor serviceability risks, particularly for major investors with large property portfolios. Further, the data quality of DTI data for investors is lower.

Read more:

LVR a “permanent tool”: RBNZ Governor 

Next phase of RBNZ review likely to assess DTIs 

Tags: banks DTIs housing market interest rates Lending Macro Prudential Tools mortgages RBNZ Reserve Bank

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Comments from our readers

On 13 August 2019 at 10:03 am KiwiInvestor said:
What is it with this latest crowd from the Reserve Bank! Are they on a mission to bring the property market in NZ to a complete halt. If it isn't already enough with government intervention, and now the RB wanting to further clamp down on it, where will all the needed housing stock (both FHB, rental, social housing) come from if no body is able to borrow money due to these unnecessary roadblocks being put in place? The government certainly won't have and doesn't want to supply all the housing stock. Someone needs to rein in this latest RB mob before it gets out of hand, and it's unrecoverable. Confidence is needed in the property market now, and this is rapidly eroding.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
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 - 7.14 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 7.74 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 - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 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 6.89 6.55 6.35
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 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
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 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

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