Reserve Bank provides an example of how debt-to-income ratio restrictions could be calculated

The following is an illustrative example of the calculation of debt-to-income (DTI) restrictions from the Reserve Bank's Framework for Restrictions on High Debt-To-Income Residential Mortgage Lending released on Monday afternoon.

This is an example of how DTI restrictions would apply in a particular case. This example is not calibrated to the actual requirements but is for explanatory purposes. Assume that the bank condition of registration is specified as such:

(1) That, for a debt-to-income measurement period, the total of the registered bank’s qualifying new mortgage lending amount in respect of property-investment residential mortgage loans with a DTI ratio of more than 6, must not exceed 15% of the total of the qualifying new mortgage lending amount in respect of property-investment residential mortgage loans arising in the debt-to-income measurement period.

(2) That, for a debt-to-income measurement period, the total of the registered bank’s qualifying new mortgage lending amount in respect of non property-investment residential mortgage loans with a DTI ratio of more than 6, must not exceed 15% of the total of the qualifying new mortgage lending amount in respect of non property-investment residential mortgage loans arising in the debt-to-income measurement period.

Time period: the three calendar months from 1 February 2023 to 30 April 2023 inclusive.

A bank takes on 1,500 commitments to provide new residential mortgage loans during this period (that is, the date on which each of these becomes a commitment in terms of section 10 of this document falls on a date within the three months). 500 of these commitments are to provide property-investment residential mortgage loans and 1000 are to provide non property-investment residential mortgage loans.

Of these commitments, 120 are for mortgage loans falling within the exemptions in section 14 of this document. 20 of the exemptions relate to property-investment residential mortgage loans and 100 relate to property-investment residential mortgage loans,

Of the 480 qualifying mortgage loan commitments in respect of property-investment, 70 have DTIs of more than 6. Of the 900 qualifying mortgage loan commitments in respect of non property-investment, 130 have DTIs of more than 6. The total loan value associated with the 480 qualifying property-investment loans is $300 million.

The total loan value of the 70 property investment loans that have a DTI of more than 6 is $50 million. The total loan value associated with the 900 qualifying non property-investment loans is $500 million. The total loan value of the 130 property investment loans that have a DTI of more than 6 is $65 million.

In this case the bank –

♦ breaches clause (1) of the condition (the loan value associated with property investment loans with DTIs of more than 6 ($50 million) is 16.7 percent of the total qualifying new mortgage lending amount in respect of property-investment residential mortgage loans ($300 million); the maximum allowed is 15%); and

♦ complies with clause (2) of the condition (the loan value associated with non-property investment loans with DTIs of more than 6 ($65 million) is 13 percent of the total qualifying new mortgage lending amount in respect of non property-investment residential mortgage loans ($500 million); the maximum allowed is 15%).