The central bank plans to introduce DTI to control excessive lending
The Reserve Bank of New Zealand (RBNZ) plans to introduce debt-to-income ratios (DTIs) in New Zealand to control excessive lending. However, many advisers are unhappy with the idea.
The RBNZ’s decision comes after Finance Minister Grant Robertson’s letter to the central bank asking it to deal with the soaring house prices in New Zealand.
However, advisers are against the introduction of DTIs – insisting that they would be “just another exercise for the broker to undertake for the customer, lender, and the Reserve Bank.”
Martin Thomas, a financial adviser at Mortgage People, told TMM Online that DTIs would be challenging to implement in Auckland as they were “probably impractical in Auckland with median house prices over $1,000,000.”
“If you’re borrowing $800,000, it assumes an income of $133,000 – that will cut most first-home buyers (FHBs) out of the market, if the banks cap DTI at six times,” he continued.
The Mortgage Shop adviser Andy Phillipson added that debt servicing ratios that were used in the past were “far more accurate and reliable.”
“In my role now, I am doing a lot of ‘financial repairs’ for clients. Despite fighting hard to get a home loan for them, it is not uncommon for a borrower to return six to 12 months later with $40k to $80k of new outside debt that I then have to consolidate or tidy up. So, in my view, debt-to-income ratio limits on mortgage lending are simply grandstanding and trying to back out of the bad situation that the Reserve Bank has created,” he told TMM Online.
Meanwhile, NewBuild Residential Construction Lending adviser Ian Webb said introducing DTIs could work if they were not implemented alongside LVRs.
“I don’t agree there should be both LVR and DSR/DTI restrictions, unless they completely exempt regulation over a person’s primary residence, and also residential construction for any purpose, as shortage of supply is the main reason for the problem in the first instance,” Webb told TMM Online.
