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Reserve Bank eyes DTIs

Reserve Bank governor Adrian Orr has revealed that the central bank would like to introduce debt-to-income ratio limits on mortgage lending.

Thursday, November 26th 2020, 3:02PM 1 Comment

Following publication of the RBNZ's Financial Stability Report, which highlighted rising DTI ratios and high LVR lending as key risks, the central bank governor said he was ready to act.

In an interview with Radio New Zealand, Orr said the central bank was "dusting off the research" on the ratios.

"Yes, would be the simple answer, if we are trying to have effective tools that can head off excessive borrowing then a debt to income ratio is one of those.

"They are relatively common internationally and they are used to head off people ... for example, with interest rates so low, servicing a loan is easier, that is the purpose of a low-interest rate.

"But that means the stock of debt being taken on becomes a risk because for example if you don't have a job it doesn't matter what the interest rate level is, you can't service a loan and it becomes bad debt and that becomes a non-performing loan for the financial institutions and so on and so forth.

"So this [debt to income ratios] puts a limit to it."

There were "benefits and costs" to the tools the RBNZ could employ, and they were what had to be discussed, Orr said.

Countries including the United Kingdom have debt to income limits of 4.5 times for homeowners, with a small allocation of lending above that limit. 

ASB has recently introduced its own debt to income limit, capping high LVR borrowing at six times in most cases.

Advisers are historically against the restrictions, which tend to hit first home buyers and investors the most.

Orr's comments come as finance minister Grant Robertson cranks up the pressure on the central bank, with rising house prices since the pandemic fuelled by low interest rates. 

The Reserve Bank has already announced plans to bring back loan to value ratio restrictions from March.

Orr said he was encouraged that banks had started to impose their own LVR rules.

"We've announced what we will be talking to the banks about," Orr told RNZ. "We have not physically put the ratios in yet but the good news is the banks have moved in advance anyway.

"Part of that consultation [is] yes, we can consider the levels that we need to manage the financial risk posed."

Tags: DTIs Lending mortgages RBNZ Reserve Bank

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Comments from our readers

On 27 November 2020 at 10:40 am krish@mortgagesuite.co.nz said:
Definitely a wrong move. It will affect more of the lower income earners and the first home buyers. RBNZ should be looking to encourage the construction sector to improve the supply and putting grants in place to encourage first home buyers to purchase new build homes.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 ▲2.85 ▲3.25 3.55
ANZ 4.44 ▲3.20 ▲3.59 ▲4.00
ANZ Blueprint to Build 1.68 - - -
ANZ Special - ▲2.60 ▲2.99 ▲3.40
ASB Back My Build 1.79 - - -
ASB Bank 4.45 ▲2.85 ▲3.25 3.55
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - ▲2.85 ▲3.25 ▲3.55
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 ▲3.45 ▲3.85 ▲4.15
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 2.35 2.75 3.05
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 3.50 3.74 4.34
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 2.65 2.89 3.49
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.99 3.39 3.59
SBS Bank Special - 2.49 2.89 3.09
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.35 - -
The Co-operative Bank - Owner Occ 4.40 2.55 2.95 3.39
The Co-operative Bank - Standard 4.40 3.05 3.45 3.89
TSB Bank 5.34 3.35 ▲3.75 ▲4.05
TSB Special 4.54 2.55 ▲2.95 ▲3.25
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 ▲3.45 ▲3.85 4.09
Westpac - Offset 4.59 - - -
Westpac Special - ▲2.85 ▲3.25 3.49
Median 4.54 2.92 3.25 3.49

Last updated: 20 September 2021 8:55am

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