UPDATED: BNZ and ASB introduce debt-to-income restrictions on mortgage lending ahead of RBNZ regulation

Banking / news

BNZ to restrict investors and owner-occupiers from getting mortgages worth more than six times their income; ASB already using debt-to-income restrictions

28th Oct 21, 3:30pm by Jenée Tibshraeny

UPDATED AT 6:33PM ON THURSDAY

BNZ is introducing debt-to-income (DTI) restrictions across its mortgage lending ahead of being made to do so by the Reserve Bank (RBNZ).

Investors and owner-occupiers won’t be able to get mortgages worth more than six times their gross annual income.

A BNZ spokesperson told interest.co.nz the change will initially apply to borrowers seeking a BNZ mortgage via a broker.

The new policy will take effect from the end of today (Thursday), and will be monitored and reviewed.

Meanwhile, ASB confirmed it's already using DTI multiples when assessing mortgage applications.

It didn't disclose the ratio[s] it's applying or say how long it's been doing so for.

An ASB spokesperson said, "In certain lending situations, particularly in the current low interest environment, we think it is prudent to consider DTI multiples, and we actively use these today."

A BNZ spokesperson likewise explained the bank is looking at the overall level of debt its customers take on "to ensure they are in a more secure position with rising interest rates".

They said BNZ regarded "increased regulatory focus on DTI ratios as a way to deliver a more sustainable housing market".

As for applying DTI restrictions via its broker channel "to begin with", the BNZ spokesperson explained, "DTI already forms part of the assessment across all our channels (through serviceability index assessments) and we’re continuing to look at how these changes will apply more broadly.

“Serviceability index assessments take a holistic look at a customer's financial situation - their income, expenses, financial commitments and current debts to ensure they are able to service their new lending. The DTI assessment is an additional overlay that only looks at the total levels of debt and the customer's income.”

Interest.co.nz asked the other major banks whether they were imposing set DTI ratios across their mortgage lending too.

A Westpac spokesperson said, "We assess a borrower’s ability to service a loan using a wide range of financial information including debt levels and income. A DTI ratio is calculated and included in portfolio monitoring and reporting, alongside other measures."

An ANZ spokesperson said, "ANZ continues to have internal frameworks to ensure affordability, and respond to changing market and regulatory requirements."

Orr: 'The more banks can do the mahi themselves, the less we need to be doing'

The RBNZ will start consulting, in mid to late November, on introducing debt serviceability restrictions. The consultation was due to start in October, but was pushed out due to Covid-19.

Finance Minister Grant Robertson in August agreed to give the RBNZ the ability to restrict bank lending by imposing debt serviceability restrictions on the condition it would “have regard to avoiding negative impacts, as much as possible, on first-home buyers, to the extent consistent with the Bank’s purposes and functions”.

Retail banks don’t of course need to have regard for this condition when imposing their own restrictions.

RBNZ Governor Adrian Orr told those tuned in to an Institute of Financial Professionals NZ virtual conference on Thursday afternoon that work from the RBNZ on DTIs is coming.

But he said, "The more banks can do the mahi [work] themselves, the less we need to be doing."

Orr said he was “really nervous” about new entrants to the housing market at a time interest rates are rising.

Indeed, from November 1, the RBNZ is requiring banks to ensure that no more than 10% of their mortgage lending to owner-occupiers goes to borrowers with deposits of less than 20%. Previously, 20% of their lending to owner-occupiers could go to this riskier cohort of borrowers. The move is effectively targeted at first-home buyers.

National's Housing spokesperson Nicola Willis described BNZ's move as a "massive blow for potential first-home buyers who will find it near to impossible to meet these lending criteria".

“Under Labour, first-home buyers have watched house prices race away from them at a faster and faster clip. Many will now give up all hope of ever buying their own home," she said.

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162 Comments

by LFCYNWA | 28th Oct 21, 4:56pm 1635393367

I should hope people aren't borrowing six times their income

by Yvil | 28th Oct 21, 3:37pm 1635388677

Why not?

by LFCYNWA | 29th Oct 21, 9:35am 1635453315

Because money does not grow on trees. When the cost of living eclipses wage rises for the next 5 years people will learn the hard way.

by JimboJones | 28th Oct 21, 3:49pm 1635389383

ASB told us we were nearing the max of what they would lend us at 4x gross income and 66% equity.

by Essen | 28th Oct 21, 5:40pm 1635396022

Are you less than ten or so years away from the retirement age?

by Justa comment | 28th Oct 21, 5:45pm 1635396300

I have been waiting to see the number that might be used for DTIs. We know its 4.5 in the UK, but we also know we have gone way past that, in some cases 8.

Well done BNZ, this will strengthen NZ banks which is a good thing, but I dont like the 6. 5.5 should be the max I think.

by YourHomeLoan | 28th Oct 21, 5:58pm 1635397103

Why should someone getting paid $4000/week max out at loan payments of $1500/week? What are they supposed to spend the extra $2500 on?

by lowercase capitalist | 28th Oct 21, 6:19pm 1635398384

Saving for the future, food and other essentials, maybe even(god forbid) some discretionary spending - some reward for trading away 40 hours of their life beyond paying for the costs of not sleeping on the street or starving.

by YourHomeLoan | 28th Oct 21, 8:59pm 1635407957

How much do you spend on food each week? What is your diet like? If you assume $100/day worth of Wagyu and Shiraz there's still almost $2000/week worth of spending. Maybe they can spend a grand a week on a car payment for their new Ferrari?

by Averageman | 28th Oct 21, 9:04pm 1635408280

Student loan. Children. Medical expenses.

by YourHomeLoan | 28th Oct 21, 9:10pm 1635408629

Student loan, childcare and medical insurance are already included in all affordability assessments as they impact on net income and outgoings.

If people have no student loan and no kids they have less expenses and can afford bigger loans. Someone may find their cashflow improves by $5000/month once their youngest turns 5 and their student loan is repaid, yet a DTI assumes their position is the same as it was when their expenses were $5000/month more.

DTIs are on top of this and a blunt tool. Anyone who thinks DTIs are an effective tool is likely pretty blunt themselves.

by Averageman | 28th Oct 21, 9:49pm 1635410994

"Forced" to take on bigger loans.

It may be blunt but debt stacking is a threat to the greedy banking system, that we all need to function normally. Peoples greed needs a wide sweeping tool. Personally I'd rather a flat land tax to offset less income tax. But hay...we dont always get what you want.

by YourHomeLoan | 28th Oct 21, 9:50pm 1635411054

No one is forced to do anything. Credit is a key to social mobility, otherwise it's just those who already have assets who can buy. These changes will increase inequality as property has been the only vehicle through which everyday Kiwis can have a comfortable retirement. That is about to be cut-off and it will be the landed gentry whose kids are able to buy and elites on 200k+ who will be able to afford to invest in property.

by MisterB | 29th Oct 21, 3:43pm 1635475411

Your scenario of someone earning $4k a week was already elitist and unrealistic for the other 99%.

The fact is borrowing more than 6x ones income is dangerous over-extension.

by Colin Nemo | 28th Oct 21, 10:38pm 1635413892

BNZ is definitely not a team player by making it hard for the little guy to get into the housing market.

DTI restrictions made EFFECTIVE FROM TODAY.

What if the other banks did the same, it'll shudder residential lending altogether and only the rich can afford properties and everyone else would be house poor. Agenda Twentythirty and for many, "You'll Own Nothing And Be Happy".

by ACB | 28th Oct 21, 6:49pm 1635400140

if you get paid a lot of money and you lose your job during a recession, chances are you will find it very hard to replace your prior salary and it will be harder to slash those private school fees and other high 'discretionary' costs. Arguably therefore, the multiple should actually be lower for high income borrowers.

by YourHomeLoan | 28th Oct 21, 9:06pm 1635408381

Or alternatively private school fees should be included in affordability assessments? Nah, let's assume a single woman in her 40s with no kids who is earning a grand a week should have to stay in her house if she loses her job and isn't allowed to sell it.

Would love to see any evidence at all of your claim about high income earners not finding new jobs. Even if it's true people should be allowed to make their own decisions and take risks. Maybe they have to send their kids to public school even.

This is the same kind of paternalistic bullshit we saw at the end of the Clark era with their lightbulb compulsion. Let people make their own decisions, the world would be a miserable place if we let the Bloomfields of this world dictate to the public how people can live their lives. Auckland already is.

by MisterB | 29th Oct 21, 3:45pm 1635475508

"Let people make their own decision" - so you would have people decide to borrow 100% of a property value at 12x income? Are you a broker or a real estate agent?

People (BNZ here) are making their own decisions on risk.

by kiwiana02 | 31st Oct 21, 9:57pm 1635670638

Lol. It’s not paternalistic bullshit by banks, its hard nosed risk assessment aimed at protecting their loanbooks and profits from potential default by overextended borrowers.

by Pa1nter | 28th Oct 21, 9:05pm 1635408319

This is a problem that's not really a problem.

by YourHomeLoan | 28th Oct 21, 9:52pm 1635411135

Indeed. And that's how DTIs work. They solve a problem that doesn't exist and create more red tape and compliance for literally everyone.

by Notgreedykiwi | 29th Oct 21, 7:12am 1635444738

$4000 a week is $16000 a month ( after taxes). If you earn that much money in hand, don't worry about the DTI restrictions. Banks will give you what ever amount of loan you want.

by npc | 29th Oct 21, 8:55am 1635450956

Depends. A lot of people on that money will be self employed.

Heartland rejected my mortgage application on that basis, despite a similar income and a mortgage 1/6 of take home.

by YourHomeLoan | 29th Oct 21, 10:23am 1635456208

No they won't, they still apply DTI to high income earners. You would be capped at $2m which is about 1.5 average houses in Wellington.

by MisterB | 29th Oct 21, 3:46pm 1635475613

You'll be capped at a $2m LOAN, not a $2m property. At that sort of income I'd expect a good deposit, so I would think that was plenty of lending.

by CourtJester | 28th Oct 21, 5:47pm 1635396428

Come on now, that's such a 2010's thinking...

by Carlos67 | 29th Oct 21, 4:10am 1635433855

I remember the good old days when the DTI was effectively 3 and you couldn't buy a house on that with one income. Now the DTI is set to be 6 and you cannot buy a house on two incomes. The DTI does draw a clear line in the sand however, perhaps if you cannot afford the house at 6 you need to look at an apartment instead.

by chebbo | 28th Oct 21, 3:40pm 1635388824

Aussie 2y yields taking off this afternoon after the RBA refuses to buy them. Credit is about to get a lot more expensive and harder to obtain, and given that credit is what people use to buy houses with, that means a much lower level of demand for them.

by Justa comment | 28th Oct 21, 4:43pm 1635392618

The aussie RBA as they say in The Castle "is dreaming" if they think they wont need to raise until 2024.

by Yvil | 28th Oct 21, 3:37pm 1635388641

Interesting, although in many ways banks already look at the income available to service the debt, this makes it more official. It also mistakenly compares a cashflow measure "income" with a financial position measure "debt".

by Matua | 28th Oct 21, 4:11pm 1635390693

All three financial statements (P&L / CF / BS) are linked so its not a mistake to compare the two measures.

by Yvil | 29th Oct 21, 2:25pm 1635470749

3 financial statements ??? There are 2 financial measures;

- 1 Cashflow which measures Income and Expenses tracking the movement of money over a time period, typically 1 year.

- 2 Financial position which measures Assets and Liabilities at a specific point in time, i.e. how much one has and owes today or on the 31st of March typically.

The two don't mix, accounting 101.

by Yvil | 29th Oct 21, 2:30pm 1635471033

Here's an example why DTI is a flawed measure. John's income is $100k and he has a mortgage of $500k = DTI of 5, the bank is happy. Let's assume in a year's time interest rates double, would John be in trouble? Most likely Yes, has his DTI changed, absolutely not. Why ? "E" is missing, as in Expenses. An ETI (Expenses to Income ratio) measure would take care go that

by mfd | 29th Oct 21, 3:48pm 1635475680

It's not a complete measure, not is it proposed that it should be. Banks will still have their affordability calculations, and we still have LVR.

Looking at the numbers, it's very clear that the niche that DTI occupies is drawing curtains on leveraged investing, perhaps removing ~10% of all recent demand for houses (speculative guess - investors have been running at 15-20% of the market and I expect this to dramatically reduce if DTI is rolled out to all banks).

Another item in the Government and RBNZ's toolbox to bring down house prices.

by EarlyMillenial | 29th Oct 21, 6:23pm 1635485004

There are 4 financial statements and they are absolutely linked to each other. Balance sheet is a point in time, cashflow and P/L describe how an entity got to that point in time, over the last however many months since the last balance sheet point in time.

The only leeway is that for average people who are wage-slaves, cashflow and I/E are pretty much the same, as they would be on cash-basis. (no time delay in income/getting paid/expense/paying).

Cashflow is more important in determining the a person's ability to service their obligations.

(4th statement is statement of changes in equity - which, again, an average wage-slave wouldn't need to worry too much about)

by rastus1 | 28th Oct 21, 3:37pm 1635388653

What the fricken heck is wrong with National !!!

"National's Housing spokesperson Nicola Willis described BNZ's move as a "massive blow for potential first-home buyers who will find it near to impossible to meet these lending criteria".

Good grief these moons make it hard to find an alternate Party to vote for.

by Yvil | 28th Oct 21, 3:39pm 1635388774

So you think National's statement is wrong that it will make it harder for FHB to buy a home?

by Colmolo | 28th Oct 21, 3:42pm 1635388938

I think it will be harder for those FHB's that shouldn't be given so much debt. The DTI will save them from themselves.

by HouseMouse | 28th Oct 21, 4:59pm 1635393552

In Yvil's little dream world interest rates can never go up significantly, nor can house prices correct, nor can people lose jobs etc. So why not lend mortgages at 7 or 8 times household income? What could possibly go wrong when all we've had for the past few years is lowering costs of debt and increasing prices..................

by Yvil | 29th Oct 21, 10:45am 1635457513

I have lived and worked in 3 different continents, I have visited 84 countries, I have been an employee, self-employed and I'm now an employer, I speak 3 languages fluently, what makes your world bigger than mine HM?

by Mrs The Point | 29th Oct 21, 11:22am 1635459722

I, I, I, I. When will it ever stop Yves? World renowned Swiss-French Architect.

by Yvil | 29th Oct 21, 2:32pm 1635471138

Maybe when HouseMouse stops trying to belittle me?

by mfd | 28th Oct 21, 4:29pm 1635391749

Which FHBs? The ones looking to buy in Auckland right now, or the vast majority of FHBs in the future who will benefit from actions bringing house prices down?

Edit: actually, thinking about it the statement is demonstrably false as 75% of FHBs meet these criteria already (in the most recent date from June)

by rastus1 | 28th Oct 21, 5:10pm 1635394237

Yes. making credit harder to get will lower prices and let the market reset to long term norms.

Schemes to assist first home buyers (look to AUS as an example - $50 grants led to an increase of same) increase prices for all - and thus more debt. Same theory here. Its all done to enrich the banks.

The answer is to make credit tighter, not looser - have you observed nothing?

by Lord Dowding | 29th Oct 21, 1:44pm 1635468298

Absolute dreamer with a bunch of dreaming followers.

Prices are not suddenly going to come down to average salary DTI x 6 levels.

by lowercase capitalist | 28th Oct 21, 3:40pm 1635388813

Both of the major parties are on board with the housing ponzi. The minor parties seem like a better bet for meaningful change.

by fortunr | 28th Oct 21, 4:28pm 1635391700

I am not so sure about that.

ACT is too extreme in many of its policies, and the Greens would be more damaging to the NZ economy than all earthquakes in NZ history combined.

by npc | 29th Oct 21, 8:58am 1635451098

What policies do you think are too extreme?

by HouseMouse | 28th Oct 21, 5:00pm 1635393616

They are all an absolute waste of space. End of story.

by Colmolo | 28th Oct 21, 3:41pm 1635388885

It's a sad state of affairs when there is not one common sense person in power.

by J.C. | 28th Oct 21, 3:46pm 1635389170

Good grief these moons make it hard to find an alternate Party to vote for.

I think you misspelt 'morons'. Anyway, Nicola is just another populist who's good with dropping soundbites. She's as deceptive, snakey, and self serving as Ardern and Robbo. All cut from the same cloth.

by HouseMouse | 28th Oct 21, 5:01pm 1635393693

She's God awful. Like Ardern, she presents well, but I don't think there's much substance there...

by RickStrauss | 29th Oct 21, 2:02pm 1635469347

Nicola Wilis sure does rock out the National crocodile tears on cue.

by fortunr | 28th Oct 21, 4:25pm 1635391558

Current National is a sorry sight. They don't even know what they want. They are in such a messy state that, unless they urgently get some serious leadership and a clear, definite and decisive direction with convincing policies, they will be completely toast in the next elections.

by Dgm | 28th Oct 21, 4:26pm 1635391562

Did you forget about Mr. Key and his philosophy.. keep borrowing .. so the National party are singing the same song...

by Justa comment | 28th Oct 21, 4:46pm 1635392802

Exactly, after their heart felt comments on the buyers out of the market needing more density in housing the other day. They are quite happy to say things that wont have any impact for 10 years, but DTIs will control prices immediately which is good for FHBs.

by Miguel | 29th Oct 21, 11:09am 1635458994

She is being completely disingenuous. This will have a far bigger impact on investors. Do the math - at yields around 5% this will have a much bigger impact on investors using rising equity increases to expand their portfolio.

reducing competition from investors will do far more to help FHB than any the harm caused by DTI restrictions

by RickStrauss | 29th Oct 21, 2:03pm 1635469434

Disingenuous is basically the entire party schtick when it comes to laws affecting investors on the demand side. National remain the fire to Labour's frying pan when it comes to housing and young people.

by al123 | 28th Oct 21, 3:45pm 1635389122

I don't see how it will make much of a difference to first home buyers. To put it in perspective, 2 full-time minimum wage workers earn a collective $83200, which means that a DTI of 6 would limit their mortgage to just under half a million.

by lowercase capitalist | 28th Oct 21, 3:48pm 1635389299

Have you seen what 500k gets you in the major centers these days?

This may have some teeth.

by al123 | 28th Oct 21, 4:00pm 1635390055

Sure, it won't get you much. But the point is this - how many banks are (or have been) lending two minimum wage workers half a million dollars, without DTIs in place? Not many I'd bet.

by HouseMouse | 28th Oct 21, 5:06pm 1635393961

very very few minimum wage workers will be buying housing.

This initiative is being overhyped.

As others have said, loans higher than a DTI of 6 will be fairly rare anyway.

In the FHB market in Auckland, the typical couple have a household income of circa 150-180K, and are taking on a mortgage of circa 600-800K: well within the DTI of 6.

by Essen | 28th Oct 21, 5:44pm 1635396297

You're right, it's overhyped. Banks have been looking at DTI for some time and most of the banks started restricting based on DTI since early this year. None of that has made a difference, yet.

by HouseMouse | 28th Oct 21, 6:18pm 1635398292

Exactly.

by youngdumbandfullofit | 29th Oct 21, 7:36am 1635446189

That's some top quartile incomes for 'typical' first home buyers. The vast majority of would be FHBs will be sitting nearer to their median wage obviously which for a couple in their late 20s is take home pay of near 90k. So, just a few scores of thousands off...

by Lord Dowding | 29th Oct 21, 1:44pm 1635468267

No the vast majority of FHBs are not median wage earners.

by RickStrauss | 29th Oct 21, 2:06pm 1635469571

And this is likely the real reason for rental shortages and social housing waiting lists despite rental stock continuing to increase. Not enough young people are able to buy, more being forced to stay in the rental market for longer and longer.

We should really stop using policy to transfer wealth from younger and upcoming generations of Kiwis. This is a moral character problem before it's a policy problem.

by Notgreedykiwi | 28th Oct 21, 4:49pm 1635392973

Once you restrict lending, they might not get anything tomorrow but with time they would. Nothing floats high up in the air forever. It's got to land one day. May be a hard landing for this housing flight.

by Sluggy | 28th Oct 21, 3:49pm 1635389376

FHB's I know in auckland are borrowing 800k plus for dog boxes in the far reaches = win

by J.C. | 28th Oct 21, 4:13pm 1635390793

FHB's I know in auckland are borrowing 800k plus for dog boxes in the far reaches = win

Like lambs to the slaughter

by Just Some Advice | 28th Oct 21, 5:37pm 1635395824

What should they do otherwise? (Haven't received a serious answer to this question before)

by Rob Reid | 28th Oct 21, 6:15pm 1635398122

Speaking for myself, I dropped out of contention years ago - we rent and I keep my expectations low.

by Lord Dowding | 29th Oct 21, 1:48pm 1635468539

Renting is horrible. Horrible for mental health, horrible for family and horrible for the bare liveable standard you get for a minimum of $650 a week.

Quality of life is infinitely better when owning even with a high mortgage.

by HouseMouse | 28th Oct 21, 6:20pm 1635398424

It's the definition of an insane housing bubble ready to pop...

by VTHO | 28th Oct 21, 6:20pm 1635398422

Much rather spend a million on the fringes than 3 million in Central. Fringes (well north at least) are bloody nice places, and if you can avoid going to central regularly, I'd say your winning.

by HouseMouse | 28th Oct 21, 6:21pm 1635398479

It's still an insane price for what are effectively shoeboxes in remote locations.

by Pragmatist | 28th Oct 21, 8:18pm 1635405525

You think these prices are insane? Check back in a few years if we have sustained inflation..

by Brock Landers | 29th Oct 21, 7:42am 1635446570

If we have sustained inflation interest rates will be much higher.

by refactornz | 29th Oct 21, 8:54am 1635450879

And wages much higher.

by Averageman | 29th Oct 21, 11:55am 1635461716

As long as the employer avoids going broke. Which creates a bigger problem of nil income...

by RickStrauss | 29th Oct 21, 2:08pm 1635469691

If wages are much higher it's just a pendulum swing back after the wealth transfer to assets in the last few years. Needs to happen though, large wage increases and stagnant asset prices. For that we'd need to reward hard productive work though, rather than folk just sitting around on their ass-ets.

by Cowpat | 28th Oct 21, 3:57pm 1635389825

Most recent DTI summary release from RBNZ , albeit for DTI above 5

www.rbnz.govt.nz/-/media/ReserveBank/Files/Statistics/tables/c40/Debt-t…

The next C40 data which is a monthly release , will not be available oddly until November

by Fluffybunny | 28th Oct 21, 5:03pm 1635393838

This is also aimed at people with multiple properties, who can currently use the weight of a portfolio to out bid 1st time buyers.

As per all the housing restrictions recently, its not enough in the face of the many billions we have just printed, but in the right direction. Summer will be interesting. Lots more options now coming online for summer.

by tulips | 28th Oct 21, 3:52pm 1635389566

Only in the broker channel- this is interesting.

For once FHBers and investors may be better off going direct to the bank for their loan.

by bw | 28th Oct 21, 4:00pm 1635390013

So 6 x household median $110,000 = $660,000 loan. (NB: The UK uses X4.5, which seems far more sensible)

Evaluated at, say, the average long-term mortgage rate in New Zealand, 7.5%, that's a monthly after-tax evaluated payment of ~$4,600 per month over 30 years. $~55,000 of the ~85,000 that Household will have in After Tax Disposable Income. Good luck living from the ~$575 per week that remains.

"But the actual cost of the mortgage today will be at about 5%, not 7.5%!" Sure. But why do we think the BNZ is bringing this policy in? To turn business away? (maybe!) or protect against what may happen?

Besides, the current additional $250 buck a week still isn't going to go far!

by Brock Landers | 28th Oct 21, 4:54pm 1635393262

They are bringing it in to "suggest" to the RBNZ that the limit should be 6x.

Of course, it should actually be about 4.5x.

by Justa comment | 28th Oct 21, 7:26pm 1635402363

You might be right there, good thinking.

by Pragmatist | 28th Oct 21, 8:24pm 1635405870

7.5%. Lol. By the time rates get that high the median household income will be $150k+

by Averageman | 28th Oct 21, 3:56pm 1635389793

Broker channel only....BNZ is looking to quickly have nil broker lending.

by Carlos67 | 28th Oct 21, 4:07pm 1635390479

This is going to be a huge chunk of the FHB gone from the market. Still it had to have teeth no point making it the current reality of 9 times or more or they would be in the shit in a couple of years time.

by al123 | 28th Oct 21, 4:12pm 1635390751

I don't think so - when I was looking for lending back in November 2020, none of the banks would lend me more than 6x my income then (not that I wanted to borrow that much anyway). All the data I have seen about FHBs with high DTIs is about lending at more than 5x income - it's possible that there has actually been very little lending to first home buyers at DTIs greater than 6. Have you seen any data on that?

by mfd | 28th Oct 21, 4:20pm 1635391226

Partial data here - not as bad as vested interests will make it seem.

25% of all FHBs over 6 DTI in July, 37% of Auckland FHBs.

https://www.rbnz.govt.nz/statistics/c40-residential-mortgage-lending-by…

by YourHomeLoan | 28th Oct 21, 4:36pm 1635392168

The good news it's been really easy to buy a first home in Auckland for a long time, so shrinking the buyer pool by a mere 37% will only make a difference at the margins.

by al123 | 28th Oct 21, 4:54pm 1635393278

Thanks for that - if I'm reading it right though that is millions lent, rather than individual loans granted. So given that people borrowing at more then 6x DTI are likely to be borrowing a lot more money, I'd expect the actual number of first home buyers who have borrowed at that level to be less than those percentages.

by Pragmatist | 28th Oct 21, 11:38pm 1635417511

The excel file has the data in number of loans also.

by al123 | 29th Oct 21, 8:06am 1635448004

Thanks - based on the numbers for July, 20% of all first home buyers had a dti over 6. (34% of Auckland fhbs).

by mfd | 29th Oct 21, 11:14am 1635459291

Thanks for following up - I was a little busy yesterday. You're quite right, the impacts are smaller than I originally stated as I used the dollar values.

by Essen | 28th Oct 21, 5:47pm 1635396431

Rumours that BNZ's median DTI is 9 on residential housing loans.

by Justa comment | 28th Oct 21, 7:27pm 1635402441

and a company named after a small furry animal.......

by Pragmatist | 28th Oct 21, 8:29pm 1635406144

Don't tell me you actually believe that?

by Pragmatist | 28th Oct 21, 10:15pm 1635412543

Somebody linked the rbnz c40 data above, median DTI of 9 just isn't plausible, it's beyond rediculous.

by Matua | 28th Oct 21, 4:20pm 1635391212

Is it really? I would guess 6x would roughly work out to the max most banks would get to based on serviceability testing anyway. It's about what ANZ are offering us at the moment.

by J.C. | 28th Oct 21, 4:15pm 1635390907

Will the sheeple who recently purchased be compensated in any way?

by CourtJester | 28th Oct 21, 5:50pm 1635396612

Why would the people with the means to buy be compensated for anything?

by mfd | 28th Oct 21, 4:21pm 1635391286

Anyone know how rental income is treated? Hopefully either excluded from gross income, or requires interest, maintenance, insurance, rates netted off against them.

DTI is the final nail in the coffin for the strategy of snowballing leveraged rental properties. When I looked into this previously, there will be 5-10% of FHBs caught up as collateral damage - but good for virtually everyone in the long run as house prices moderate and hopefully fall.

edit: as above - it's actually more like 25% of recent FHBs who would have been kneecapped. I may have been assuming the restrictions would be >7 DTI last time I thought about this.

by tulips | 28th Oct 21, 4:29pm 1635391743

I would be interested to know this too. Would assume rental income should be treated gross for calculating DTI

by mfd | 28th Oct 21, 4:30pm 1635391850

Crazy loophole if so - most of the gross rent is eaten up by associated expenses.

by Essen | 28th Oct 21, 5:49pm 1635396587

Estimate net rent. However, since the deductibility changes, they don't use 100% of the net rent. It's down to around 60-65%. I don't know if it's different if it's a new build though.

by mfd | 28th Oct 21, 8:28pm 1635406109

Thanks to you and YourHomeLoan for this, sounds like a vaguely reasonable figure. I would suggest it's a little too generous, especially to those buying in Auckland where the property is unlikely to be cash flow positive to any real degree, especially if accounting for maintenance. Hopefully the RBNZ will tighten this up when the real regs come out.

Still worth realising that on a generous 5% yield, this rule only allows an LVR of ~20% for any new property unsupported by salary or other income. Crippling to those trying to quickly build a portfolio on their growing equity.

Edit: actually, I think I've misread - you did say net rent which will be much more damaging.

by YourHomeLoan | 28th Oct 21, 9:18pm 1635409086

The banks are scaling rent by 30-50% in the current market off the back of the tax changes and CCFA changes.

Prior to these it was 20-25% mostly.

Effective result is gross yield to break even is up at 10-12% which is not doable. Investors are cooked. Borrowing power is heavily skewed to salary/self-employed income. And expect even more pressure on rents...

by brisket | 29th Oct 21, 7:33am 1635445988

I hope so.

by YourHomeLoan | 28th Oct 21, 4:34pm 1635392043

DTI is the final nail in the coffin for the strategy of snowballing leveraged rental properties.

Correct. Buy and Hold is no longer a viable strategy for most big investors as they won't be able to finance them. Expect property flipping to come back in a big way. The interest is all tax-deductible as well.

Rental income is scaled and then the end value is used for calculating income under a DTI. Net effect is borrowing power for buy and hold is reduced by 30-40%

by Averageman | 28th Oct 21, 9:29pm 1635409761

Flipping is fine. Gains will all be taxed. Finally.

by fortunr | 28th Oct 21, 4:22pm 1635391355

Yet another example of the tardiness with which the RBNZ has been acting. Yet another example of banks taking action well before the RBNZ. It is getting embarassing.

by Jaf | 29th Oct 21, 9:33am 1635453188

Contrast the speed with which RBNZ acted without consultation to slash interest rates in 2020 when property prices were merely speculated to slide X RBNZ's foot-dragging & tardiness to act when house prices have actually spiralled up eg consultation , Covid, blah, blah.

by 7jai | 28th Oct 21, 4:21pm 1635391286

Honestly, I bought at the peak price market, but I took the risk and got a mortgage before all these tools came in... With all these mortgage restrictions coming to fruition, it would've just made my life a living hell to save up even more money for the deposit while the housing prices continue to go up. It's just going to be impossible to buy anything (unless I relocate to a city in the middle of nowhere).

I feel so bad for the upcoming FHB's who are still looking or actively looking.... More pain is coming their way unfortunately.

by wewillsee | 28th Oct 21, 4:28pm 1635391737

This view precludes the concept of falling house prices. Capping sector based debt by in large is a way of capping sector based inflation.

by Albert2020 | 28th Oct 21, 4:30pm 1635391820

When was the peak?

by Whatwillhappen | 29th Oct 21, 8:02am 1635447739

Next year

by Carlos67 | 29th Oct 21, 11:28am 1635460112

The housing peak will be this summer. The RBNZ were to slow to raise rates but now changes are in progress beyond what the RBNZ can control, I'm expecting some pretty big hikes in rates from February 2022 and if Orr doesn't do it, the banks will just ignore him and do it anyway.

by fortunr | 28th Oct 21, 4:31pm 1635391898

Many of them (at least the smartest ones) will give the NZ housing Ponzi the finger and leave NZ for better opportunities and a more sane housing market overseas.

by Notgreedykiwi | 28th Oct 21, 4:51pm 1635393115

You certainly got it right. Nz is not worth it for new house buyers or young people starting in the job market or starting a family. They should fly out, better and bigger world out there and full of more opportunities. Don't waste it here

by Colin Nemo | 29th Oct 21, 11:12pm 1635502339

Totally. Unfortunately for many, it's the uncertainty of the big wide world and not knowing whether they have the skills to easily secure a job say in the UK and Australia as unemployment rates are on the rise over there.

One moment, it's fine then next moment, there's a lockdown for Australia and for the UK, one moment you're fine and next moment, you're waiting 2 hours in a queue in hope that the fuel station isn't emptied out of fuel before you reach the front of the line.

It's far more "comfortable" and safe knowing what you're dealing with if you were brought up locally to stay put than to risk not being able to get work overseas in spite of the high house prices. Due to the labour shortage here, it's relatively easy to pick up a job if you want and pay your bills than not to have any income at all in a foreign country.

by Fluffybunny | 28th Oct 21, 5:11pm 1635394273

In property timing is everything. These are assets we own for a lifetime & most people look at current MSM mania and can't see past wanting a new deck & next few months mortgage payment. Let along objectively looking at the next 5-10 years.

The most important is keeping options available, no matter whether I buy, rent, buy a rental first then buy home, invest in something else.

If I take this mortgage, what will be my options later?

Am I geared in a way to deliver maximum returns over a variety of market conditions?

by CWBW | 28th Oct 21, 4:54pm 1635393246

This is excellent news for future rents.

On the other hand, landlords should be magnanimous enough to consider offering their tenants the option to prepay their rents with their home deposits to lock in the rents at the current rates to reduce the tenants'exposure to rising rents.

It's a win-win.

by Brock Landers | 28th Oct 21, 5:01pm 1635393702

Hi C-BBW. How much did the average rent increase by over the last quarter? Did all 74 cents of it make up for the loss of mortgage deductibility?

by HouseMouse | 28th Oct 21, 5:09pm 1635394148

Landlord scum don't get it do they?

they just think people will pay more and more rent, without changing their behaviour to adapt.

by CWBW | 28th Oct 21, 6:08pm 1635397738

People have choices- they are free to sleep in their cars, caravans or parks.

We have no shortages of people with better incomes eager to move in to take their places.

by HouseMouse | 28th Oct 21, 6:24pm 1635398677

Yawn.

You can cram more people in to a flat, or perhaps live with mum and dad for longer.

by Mountie | 28th Oct 21, 5:31pm 1635395475

Comment of the day Brock.

by CWBW | 28th Oct 21, 6:05pm 1635397506

Now I see how you end up where you are.

Nervous about your rental agreement renewal coming due?

by Brock Landers | 28th Oct 21, 6:51pm 1635400319

It's an impressive feat seeing anything at all with your head so far up your posterior.

What rental agreement?

by Mountie | 28th Oct 21, 8:57pm 1635407856

Yep, what rental agreement?

by D581 | 28th Oct 21, 5:06pm 1635393964

To the extent this actually does help rein in ridiculous prices it's a good thing. My main worry is that it just locks out the young and FHBs while prices continue their relentless march upward - that seems to have been the experience in the UK.

When investors apply for funding is the prospective rent for the property in question included in their income assessment or is it on their existing income?

by Brock Landers | 28th Oct 21, 5:32pm 1635395566

Keep in mind, in this country, mortgage interest is no longer a deductible expensive. That net rental income is going to look somewhat threadbare.

by Averageman | 29th Oct 21, 12:19pm 1635463181

Its really interesting to see the banks introducing DTi before the RBNZ does so. This is a signal to all that the RBNZ and the Banks have had a "nudge nudge wink wink" on this matter, and that its formal announcement is now imminent. How the debt snorting speculator community reacts will be when the following really telling signs occur....

Listings increase significantly in the next couple of months
Language changes to "must sell, overseas owners quits portfolio, all offers presented" etc.
Listings start quoting a price vs agent driven, Auctions and PBN
While listings go up, sales go down (owners want last years price)- so sorry.
Mortgagee listings start to climb. Mainly crap rentals that should have been exited last year.
Agent numbers start to decline...fast
Prices start to go down as people cant meet the funding criteria of the DTi threshold,
Which accelerates the specuvestors bailing out.
Price decline becomes a circular argument, downwards.

by ACB | 28th Oct 21, 7:15pm 1635401706

We can hope but never underestimate how long irrational housing bubbles can last. I've been wrong for the past 10 years at least. And despite owning my own home.

by Notgreedykiwi | 29th Oct 21, 7:20am 1635445229

Not owning an investment property or upgrading your current home to a new home is not a loss. Just sit tight, pay off your mortgage and enjoy the fun. You will live longer with less stress. Lots of stress is coming to the way of highly investors in housing market.

by Dale Smith | 28th Oct 21, 6:44pm 1635399852

I'm not sure how DTI Central Govt. mandates are supposed to work?

After all, banks are meant to be determining the borrower's ability to afford what they lend, and stress testing it.

This seems to be saying banks are either consciously lending more than they know is financially prudent for their client or do not have the ability to assess what amount is financially prudent for their client.

by ACB | 28th Oct 21, 7:08pm 1635401301

Yes this a point I have often raised. Do we trust the banks to be prudent and leave them alone or are the banks' management acting in their best (short term) interests by lending recklessly with some view that the RBNZ will bail them out either directly or via propping up housing prices at the first sign of weakness?

by brisket | 29th Oct 21, 7:37am 1635446259

The historical record suggests that banks are very very poor at remaining prudent in a housing bubble.

by Roy1 | 28th Oct 21, 7:16pm 1635401807

Anything that is not a policy by rbnz is no good as banks many a time may bend their own rule under competition.

One wonder, why are they highlighting now in media.......may be RBNZ is plaining to bring a policy and banks ( who do not want) are trying to influence RBNZ to not impliment by showing that they are doing by themself so why bring law.

by VTHO | 28th Oct 21, 7:38pm 1635403092

ASB at 7x DTI according to someone who works there in the lending department whom I talked to. Can anyone back this up?

by General Comment | 29th Oct 21, 11:09am 1635458985

I don't work for them, but that roughly marries with a comment/threat I got from them back in April/May.

by Brutus Iscariot | 28th Oct 21, 7:43pm 1635403432

This won't change much. Expect a proliferation of second mortgage providers to provide the little bit of extra leverage in exchange for an exorbitant interest rate.

This was common prior to the 1990s.

by ACB | 28th Oct 21, 8:27pm 1635406040

From what I've heard, the banks want to take such a huge 1st mortgage priority (higher than they amount they've lent) that basically second mortgages are a thing of the past now.

by Dale Smith | 28th Oct 21, 8:37pm 1635406635

It worked then, for a little while, because median house prices relative to income was 3x ish. in fact this type of lending is one of the reasons for the median multiple blowouts.

If you can't increase much more the median multiple to increase the equity to cover a non-secured secondary position, what does the interest rate have to be to cover this?

by B727 | 28th Oct 21, 7:48pm 1635403739

More first home buyers locked in as long term tenants.

Great news and will use to further justify upping monthly rents.

Thanks Interest website, always helps the narrative when talking to disgruntled tenants.

by gnx | 28th Oct 21, 8:18pm 1635405517

Rents just went up by a buck a week... and house prices by 30%

if it sounds like a ponzi, quacks like a ..........,.....

by mfd | 28th Oct 21, 8:22pm 1635405753

While I applaud optimism, I think that the effect on house prices and the brakes now applied to any portfolio expansion are likely to outweigh any rent increases that come from this.

by AJ123 | 28th Oct 21, 8:27pm 1635406052

AS I said many times and people might not like it, I believe the staff at RBNZ just copy-paste the decision of big 4.

Why are we as taxpayers are paying such an incompetent bunch.

by YourHomeLoan | 28th Oct 21, 8:55pm 1635407738

ASB have been using these for almost a year btw, but only based on certain deposit amounts depending on the borrower type

by stuart786786 | 29th Oct 21, 8:21am 1635448903

Wrong. They may be using it but if have good deposit and decent earning will be flexibile and sometime more than 7 times also with little manipulation/twisting the application.

by Solve_it | 28th Oct 21, 9:45pm 1635410719

Kiwibank have been applying an extremely conservative DTI to lending at least since July when I extended my borrowing. 5 or less in my example.

by nickp | 29th Oct 21, 7:10am 1635444600

So if this applies to rental income, mo one will be able to buy using bank finance.

A 5% yield 1m property has income of 50k

50k times six equals 300k , so under this rule lvr of 30%

Investors out of the market unless they use finance companies.

by brisket | 29th Oct 21, 7:39am 1635446386

I hope so. That would be great.

by mfd | 29th Oct 21, 9:11am 1635451908

Probably be able to buy a second home based on sharing your salary and other income over the properties. Maybe pick up another property every decade or two.

But yes, the stories of starting with $50k and building a portfolio of 10 houses in 10 years will be long gone if DTI spreads - and the country will be better for it.

by Averageman | 29th Oct 21, 1:23pm 1635466985

Exactly. "Investors use equity"...biggest Interest.co.nz tui right there this year.

Many million doller homes rented for well less than the borrowing ratio proposed. Debt stacking for speculation has been the bane of NZ for the last fifteen years and the greatest lever of inequity in NZ. Hoping this blows the last 30% frenzy on house prices squarely in the back of the head, if not more.

Gonna deep fry my popcorn!

by stuart786786 | 29th Oct 21, 8:19am 1635448764

Whatever your income can add another $15000 to $20000 per annum as flat mate to boost loan by another $100000 and am sure must be other ways to manipulate - check with finance broker.

Also this 6 time is not fixed, if have good salary and deposit 7 time is no problem at all even now.

Banks are only highlighting it in media to influence RBNZ decession making and prevent them for passing it and making it compulsoary.

Ulterior vested motive for banks making it a headline.

by Lord Dowding | 29th Oct 21, 9:26am 1635452771

If you’re a single average income household forget about ever buying your first home.

The government have literally killed your dream.

Meanwhile prices are galloping away again. I’ve watched auctions on the Shore now for a couple of weeks and the prices are beyond what anyone can fathom. Didn’t see anything passed in either.

by mfd | 29th Oct 21, 9:30am 1635453027

As predicted earlier in the thread - vested interests exaggerating the impact on FHBs. This measure is targeted straight at investors, with minimal (although there is some) collateral damage.

by Miguel | 29th Oct 21, 11:15am 1635459318

Perhaps math isn’t your strong point, but this will impact highly leveraged investors far more than FHB.