BNZ first bank to introduce DTIs

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.

Comments from our readers

On 29 October 2021 at 11:08 am valkyrie6 said:

So BNZ is applying DTI’s to mortgage adviser deals only and not via their retail branches?
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.

On 29 October 2021 at 11:37 am Tony Hall said:

I do not agree that small investors will be relatively unaffected by a DTI.

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.

On 29 October 2021 at 11:49 am Amused said:

“It (BNZ) is limiting the amount of money people can borrow under a debt to income ratio, or DTI.”

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.

On 29 October 2021 at 1:31 pm KiwiInvestor said:

This was not a choice made by BNZ out of the kindness of their hearts to 'protect' borrowers, rather they were made to implement this by the RBNZ. This is just the start, all other banks will be made to follow suit.

On 29 October 2021 at 2:04 pm Gordon Gecko said:

I guess this move by BNZ is one way of reducing the trail commission paid to advisers and increase their own margin

On 29 October 2021 at 2:41 pm resnter said:

100% agree with Amused, this is not ok to be discriminated against, will not be much left of us if this sort of behavior continues, perhaps a strike is in order? What else can we do other than notify FMA... this is getting out of hand.

BNZ first bank to introduce DTIs

BNZ has announced sweeping new restrictions on borrowing.

Friday, October 29th 2021, 10:20AM 6 Comments

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