BNZ first bank to introduce DTIs
BNZ has announced sweeping new restrictions on borrowing.
Friday, October 29th 2021, 10:20AM 
6 Comments
by Eric Frykberg
It is limiting the amount of money people can borrow under a debt to income ratio, or DTI.
This is being set at six times the amount of money that is earned by a borrower.
The bank explained its actions by saying it is a responsible lender and takes its obligations seriously.
It is are making these changes to mortgages that are gained via a mortgage broker in the first place. The bank is however looking at how to extend this policy to 'walk in' mortgages as well.
It adds a less formalised version of DTI has long been applied to all loans anyway, since all banks look at borrowers' earnings when assessing their ability to make interest payments.
It adds it is looking at the overall level of debt its customers take on to ensure they are in a secure position with rising interest rates.
This action comes as long term rates have already risen and look certain to rise further as historic low interest rates fade away world wide.
The move has been described as a case of beating the Reserve Bank to the punch by a broker, Bruce Patten of Loan Market.
He says the RBNZ had already obtained the right to set DTIs as one of its weapons in the fight against inflation and especially house prices.
But it has not yet used this tool, and Patten says the BNZ is trying to set the number of six as a kind of going rate, in the hope that it becomes the generally accepted figure, and is the one the RBNZ finally settles on.
The alternative would have been to do nothing and wait for the Reserve Bank to move, and perhaps be stuck with a lower number such as five.
Patten added the figure of six was one which the banking system could live with but would be especially hard on first time home buyers.
Many of these were low income earners who could buy very little under a DTI of six. But they were generally young, and would earn more as they get promoted in their career, so were of no real risk to the banking system.
Paradoxically, Patten said the DTI would also hit wealthy people with large property portfolios, but leave middle income people such as Mum and Dad inverstors with a single rental property relatively unscathed.
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Comments from our readers
Noting that rent will be scaled at 70% (or lower) and that investors will likely have borrowed 100% of property cost, then the DTI on an average investment loan will be around 30 for the property component of the borrowings. If the investor has much in the way of personal borrowings they will be way over a DTI of 6 and probably even 10 or more. Not only will it stop them from further investment borrowings but it may also stop them from borrowing for personal purposes such as upgrading their home. At the extremes it my mean they can't even downsize without selling their investments and clearing debt. This is bad policy with far reaching consequences they probably haven't even considered.
The banks won't care but the RBNZ and Government should.
This should correctly read – BNZ is limiting the amount of money people can borrow under a debt to income ratio, or DTI if they elect to come to BNZ for a home loan via a mortgage adviser.
BNZ is only applying debt to income ratios to deals submitted via the broker channel "to begin with". A BNZ spokesperson interviewed has admitted this as fact.
BNZ claim they have introduced debt to income ratios to act as a “responsible lender” but why are they selectively targeting the broker channel first? We now have a situation whereby a main bank lender will lend more to a customer if that customer deals directly with the bank instead of electing to come via a mortgage adviser seeking independent advice.
Mortgage advisers cannot send business to a lender who is now openly saying to customers "come via a mortgage broker and we are automatically going to limit the amount you can borrow on a new home loan but come to us direct and we'll lend you more".
This is not bank bashing, this is now adviser bashing and the Financial Markets Authority needs to be made aware of this development.
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Please Correct me if I am wrong but how is this being a responsible lender, if a BNZ customer wants the choice to use a financial adviser or mortgage adviser to get independent advice so they can make an informed decision about their mortgage lending but have DTI’s applied , or they can go direct to a BNZ branch and received no advice to make an informed decision and not have DTI’s applied so in theory possibly be able to borrow even more ?
How can a lender have different lending criteria applying to different channels for the same customers?
This under the responsible lending rules and FMA guidelines is surly not in the best interests of the customer.