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[WATCH] Bolton changes views on DTIs, thinks LVRs need to be wound back

Veteran mortgage broker John Bolton thinks Debt to Income (DTI) ratios for lending control are not such a bad thing after all.

Wednesday, March 22nd 2023, 6:39AM 3 Comments

He also thinks Loan to Value (LVR) limits should be phased down.

Bolton was making these comments in an interview for GRTV.

DTIs are currently being worked on by the Reserve Bank, which wants them ready by next year in case they are needed to rein in any future upward rush of house prices.

They would join LVRs in the bank's toolkit of anti-inflation mechanisms.

The recent fall in house prices has taken some of the urgency out of the DTI programme, but Bolton still sees merit in them after earlier opposing them.

He says DTIs are a constant measure which ignores fluctuating interest rates and is therefore more suited to the fact that real estate purchases are a long term thing.

“I have been in my house for over 20 years.”

Bolton's view is that a DTI regime would smooth over the rise and fall of interest rates, and the consequent rise and fall of stress testing levels. They would also reflect more accurately people's ability to pay for a long term project like buying a house.

They could also avert the pain of dealing with a stress testing rate, which has reached 8.5% to 9% in response to actual mortgages reaching a 6.95% median for two-year fixed loans.

In his comments, Bolton also suggested that LVRs might be moving past their use-by date.

“They were appropriate when house prices were too high,” he said.

“But they have done their job and they did a good job, because otherwise we would have had a lot more buyers with negative equity positions.

“But because the banks have got a 10% speed limit, they are only approving main bank customers and they are not pre-approving, you have to have a house under contract, so the rules are limiting the ability of people to buy a home.”
Bolton said it would be appropriate to pull the LVR restrictions back from first home buyers, but they should perhaps be kept on for property investors.

Tags: DTIs

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Comments from our readers

On 22 March 2023 at 5:42 pm JeffQV said:
Having worked with DTI's for years in the UK they do not work.

Too prescriptive and don't allow for individual living costs or lifestyles. They also take away a lenders ability to make a commercial decision and as we've never had reckless lending in NZ DTI's are solving a problem that does not exist.

LVR's are another story, time they were relaxed to allow Kiwi first home buyers a chance and investors the ability to provide cost effective housing for a growing rental community.
On 23 March 2023 at 1:23 pm Andy the adviser said:
DTI's will not succeed in trying to rein in any future upward rush of house prices.

Too much money in the system, supply and demand, and increases in the cost of building caused by bureaucracy and legislation are the main drivers of house price increases.

The increase in the minimum wage has pushed the labour component up, material prices have increased in line with or exceeding inflation rates, health and safety (safety nets, scaffolding, and Safety meetings every morning meaning loss of actual construction time) council consent costs, fuel cost increases all add their bit to the increased cost of construction.

If housing is to become more affordable again in the future, we need to look further outside the box to help borrowers, without over-committing them.

The answers are obvious: Build more cost-effective (read "less fancy") houses, cut bureaucracy, and bring back second mortgage providers (or even Government/State Advances) to cover the deposit.
On 4 April 2023 at 3:10 pm Rob T said:
DTI's are a very blunt tool and quite apart from the fact that they lump everyone in to the same boat - designated as needing protection from themselves they take no account of the obvious fact that for someone on $70k pa a DTI ratio of 6 could be getting pretty tight, for someone on $300k family income there is a still a whole lot of cash surplus available

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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

Last updated: 20 June 2024 10:39am

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