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RBNZ pushes go button on DTI restrictions

Debt-to-income (DTI) restrictions and loosening of loan-to-value ratios (LVR) will be introduced by the Reserve Bank on July 1.

Tuesday, May 28th 2024, 10:40AM 2 Comments

Banks will need to comply with the new restrictions from that date.

The DTI restrictions will allow banks to make 20% of new owner-occupier lending to borrowers with a DTI ratio over 6 and 20% of new investor lending to borrowers with a DTI ratio over 7.

LVRs will be eased to allow banks to make 20% of owner-occupier lending to borrowers with an LVR greater than 80% and 5% of investor lending to borrowers with an LVR greater than 70%.

DTI restrictions create limits on the amount of high-DTI lending banks can make (i.e. where the borrower has taken on a high amount of debt relative to their gross or pre-tax income).

The restrictions include an allowance for banks to do 20% of their lending outside of the Reserve Bank’s specified limits. “This will improve efficiency by letting banks exercise their own discretion and manage complex cases,” Christian Hawkesby, Reserve Bank deputy, says.

“ DTIs and LVRs are complementary. LVRs target the impact of defaults by reducing the amount of potential losses in the event of a housing down-turn. While DTIs reduce the probability of default by targeting the ability of borrowers to continue to repay debt. Both act as guardrails reducing the build-up of high-risk lending in the system.

“Having both the DTI and LVR restrictions in place means we can better focus them on the risks that they are designed for while achieving the same or better overall level of resilience in the financial system. Therefore, activating DTIs means that we can ease LVR settings too.”

DTI and LVR restrictions are macroprudential policy tools. These are regulatory measures implemented by central banks and financial authorities to mitigate systemic risks and promote the stability of the financial system as a whole.

Macroprudential policy aims to reduce the likelihood of a financial crisis by restraining excessive lending during booms and making banks and households more resilient during busts.

It focuses on risks to the financial system as a whole and complements our baseline prudential policies, which apply to individual banks.

Banks were given 12 months to prepare their systems for the possible implementation of DTI restrictions.

Tags: DTIs

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Comments from our readers

On 28 May 2024 at 1:15 pm Amused said:
“The DTI restrictions will allow banks to make 20% of new owner-occupier lending to borrowers with a DTI ratio over 6 and 20% of new investor lending to borrowers with a DTI ratio over 7.”

If the above is correct it directly contradicts the Reserve Bank’s primary stated reason for why DTIs are needed in New Zealand i.e. to combat future runaway house price inflation.

If investors have been the ones mainly pushing up house prices in recent years i.e. flipping why is the Reserve Bank now making DTIs less restrictive for these investors but more restrictive for owner occupied borrowers?

Looks like the same geniuses who during the pandemic temporarily relaxed the LVR restrictions for investors are once again calling the shots.

P.S. so far silence from the new Government who were vocally against the introduction of DTIs back when they were in opposition i.e. Andrew Bayly who is now Minister of Commerce. Pathetic.
On 29 May 2024 at 9:04 am valkyrie6 said:
Amused: would it be fair to say that most of the board of the reserve bank and Adrian Orr are property investors themselves?
DTI’s are a complete waste of time and basically signal that higher income earners can borrow more. Out of the total loans written last year there would lucky if 5 % were over 6 times the borrowers’ incomes , all this will do is allow higher earners to borrower more than lower earners, financial stability risks are already heavily tested at main stream banks ,the banks already stress test borrowers based on their ability to repay, their spending habits and individual fixed expenses and outgoings .
This will only drive more mainstream borrowers to second-tier lenders at higher rates and costs, how is this not in itself inflationary?
RBNZ should stop trying to tell successful privately run businesses how to do their job, what experience does the RBNZ have (and any of its board members for that matter) in running a successful business?
Let me think for a moment …………………. Oh, that’s right none.
Feels like the RBNZ is trying to give the impression they are doing something for the sake of it , but this will have no effect whatsoever.
This feels like another knee jerk re -action from a reserve bank the dropped the cash rate too low to fast and caused inflation to go bonkers in the first place, instead overly focused on Ideologies and native trees not followed by mainstream New Zealanders.
Reserve bank not fit for purpose.

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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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