But most buyers can navigate the changes, CoreLogic says
Debt-to-income (DTI) caps are changing the lending landscape in New Zealand, but most buyers are adapting.
Here’s how these rules impact affordability and stability.
DTI caps: A new reality for borrowers
Debt-to-income (DTI) ratio limits, introduced on July 1, are reshaping how New Zealanders access property loans. These rules cap the size of loans relative to borrowers’ incomes, aiming to promote financial stability.
While concerns have been raised about DTIs locking out first-home buyers (FHBs) and investors, CoreLogic chief economist Kelvin Davidson (pictured above) argued this is unlikely.
“Most buyers should still ‘find a way,’” Davidson said, citing current lending data and exemptions.
How the DTI rules work
The rules allow banks to exceed DTI caps for up to 20% of lending to owner-occupiers and investors, with higher thresholds for new builds.
For example, loans exceeding a DTI of six for owner-occupiers and seven for investors fall under these “speed limits.” However, banks often use stricter limits to maintain safety buffers.
Currently, less than 5% of loans exceed DTI thresholds, according to Reserve Bank data, as high bank test rates naturally limit borrowing.
“The actual impact is minimal for now,” Davidson said, noting that property values remain 18% below their post-COVID peak.
Impact on high-cost regions
Expensive areas like Auckland, Queenstown, and Tauranga could see some borrowers affected by DTI limits.
However, Davidson stressed that successful buyers often earn above-average incomes or opt for properties priced below the median.
Additionally, banks may prioritise the DTI exemptions for buyers in high-cost regions, similar to allowances made for low-deposit lending under loan-to-value ratio (LVR) rules.
Long-term benefits for stability and affordability
DTIs represent a significant shift in New Zealand’s lending practices. While they might delay purchases for some, they promote financial stability and help align house prices more closely with incomes over time.
“Although DTIs may tighten the housing market in the short term, they contribute to a healthier, more affordable market in the long run,” Davidson said.
Read the CoreLogic insights in full here.
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