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Finance Minister agrees 'in-principle' to give RBNZ debt-to-income tools; Consensus yet to be reached on how the impact on first-home buyers would be minimised

Finance Minister agrees 'in-principle' to give RBNZ debt-to-income tools; Consensus yet to be reached on how the impact on first-home buyers would be minimised

NOTE: Story has been updated a number of times since it was first published. 

Finance Minister Grant Robertson has agreed "in-principle" to give the Reserve Bank (RBNZ) debt serviceability tools. 

These tools will enable the RBNZ to restrict banks' mortgage lending based on a borrower's ability to service their debt. 

While the RBNZ's focus has mainly been on debt-to-income (DTI) ratio limits, debt-servicing-to-income limits or a floor on the test interest rate that banks use in their serviceability assessments could also be considered. 

The RBNZ hasn't yet committed to implementing the restrictions, and will consult with the industry on the feasibility of doing so.

It said: "If a further tightening of policy settings is needed in the short term, the most straightforward response would be to tighten LVR [loan-to-value ratio] restrictions further."

The RBNZ estimated a DTI cap would take at least six months to design and implement. It said a floor on test interest rates could be put in place in a shorter timeframe if needed.

Not a done deal - FHBs still the sticking point

The RBNZ will now work with Treasury to add debt serviceability tools to the 2013 Memorandum of Understanding (MoU) on macro-prudential policy between the Finance Minister and RBNZ.

Robertson will need to sign off on the MoU for the RBNZ to get the tools.

He has signed a document saying he has agreed “in principle” to add the tools “on the condition that it is understood that the Minister's agreement is predicated on any implementation being designed to avoid impact, as much as possible, to first-home buyers”.

This suggests first-home buyers won’t be exempt from any DTI restrictions.

However, Robertson said, in a statement sent to media, he retained the view restrictions should "apply only to investors".

Successive governments have declined the RBNZ’s request for DTIs over political fears these would make it more difficult for people to enter the property market.

However, the RBNZ has said it would be difficult to target restrictions, but it could allow a certain portion of bank lending to go to borrowers who don’t meet the prescribed DTI ratio.

This is how LVRs are designed. Under LVR rules, up to 20% of bank lending to owner-occupiers can go to borrowers who don’t have a deposit of at least 20%.  

The RBNZ has also modelled applying loose or forgiving DTI restrictions to first-home buyers (IE allowing a borrower to take out debt worth more than six or seven times their income).

And it's modelled having an exemption for first-home buyers purchasing at prices below the current Kainga Ora Home Start Grant caps.

Interest-only restrictions off the table

Further to a request from Robertson, the RBNZ also assessed the effectiveness of restricting interest-only lending.

It concluded interest-only lending to investors (or other borrowers) "does not pose financial stability risks, nor do they impact negatively on the Government’s housing objectives".

"We also found that restricting interest-only lending would be challenging to implement and enforce," the RBNZ said. 

Robertson accepted this, saying, "The Bank notes the use of interest-only lending has been trending downwards since 2016 for both investors and owner-occupiers. The Government’s interest deductibility changes are likely to separately and significantly reduce demand for interest-only lending among investors."

The RBNZ’s case for DTIs

The RBNZ said debt serviceability restrictions would be the most effective additional tool it could use to support financial stability and house price sustainability.

Its analysis suggested restrictions would impact investors most powerfully, while having limited impact on first-home buyers.

It also maintained DTIs would complement LVRs, as they address different dimensions of housing-related risks - DTIs reduce the likelihood of mortgage defaults while LVRs largely reduce losses to banks if borrowers default.

"Over the coming months we will also be discussing with industry the feasibility of implementing a DTI limit and other debt servicing restrictions as part of our financial stability toolkit," the RBNZ said.

"Any decision on implementing debt serviceability restrictions will be preceded by a full public consultation process, along with a Regulatory Impact Assessment."

Here's a press release from the RBNZ: 

The Reserve Bank – Te Pūtea Matua and the Minister of Finance have agreed to update their shared Memorandum of Understanding (MoU) on macro-prudential policy and add debt serviceability restrictions to the list of potential tools available.

In February, the Minister of Finance issued a formal direction to the Reserve Bank (under section 68B of the Reserve Bank Act) for us to have regard to house price sustainability when making financial stability decisions. This is separate from the Monetary Policy Committee’s monetary policy remit.

The Minister also requested more information and analysis on debt-to-income ratios and interest-only mortgages. The Bank provided this advice to the Minister last month, and we are today releasing it publically.

Our analysis detailed that debt serviceability restrictions, such as a Debt-to-Income (DTI) limit, are likely to be the most effective additional tool that could be deployed by the Reserve Bank to support financial stability and house price sustainability. The analysis also demonstrated that any such restrictions would impact investors most powerfully while having limited impact on first home buyers. In our advice we also noted that we consider that a DTI limit would be a complementary tool to mortgage Loan-to-Value Ratio (LVR) restrictions as they address different dimensions of housing-related risk; DTIs reduce the likelihood of mortgage defaults while LVRs largely reduce losses to banks if borrowers default.

In his response, the Minister has agreed to add debt serviceability restrictions to the MoU in principle, on the condition that any implementation is designed to avoid impact, as much as possible, to first home buyers. We will now work with the Treasury to update the wording for the MoU, which will need to be approved by the Minister.

“Although we do not have a remit to target house prices directly, our financial policy tools can help to ensure prices do not deviate too far from sustainable levels,” Reserve Bank Governor Adrian Orr says.

“We believe that a ‘sustainable house price’ is the level that the price would be expected to move towards over several years, reflecting the underlying drivers of supply and demand for housing, including population growth, building costs, land supply, and interest rates.”

Over the coming months we will also be discussing with industry the feasibility of implementing a DTI limit and other debt servicing restrictions as part of our financial stability toolkit. Any decision on implementing debt serviceability restrictions will be preceded by a full public consultation process, along with a Regulatory Impact Assessment.

Here's a statement from Robertson:

I have agreed in principal to the addition of debt serviceability restrictions to the Reserve Bank’s macro-prudential toolkit on the condition that this should not impact on first home buyers.

I retain the view that the development and design of any debt serviceability tool such as a debt-to-income (DTI) ratio limit should apply only to investors.

The Reserve Bank has clearly stated that there is no immediate plan to use DTIs and any decision to do so would only happen after a full public consultation. The Government has already put in place a number of measures to cool the housing market and it’s important to give these initiatives time to assess their impact.

I have accepted the Reserve Bank’s advice on interest-only lending, which will not be included in the MoU. The Bank notes the use of interest-only lending has been trending downwards since 2016 for both investors and owner-occupiers. The Government’s interest deductibility changes are likely to separately and significantly reduce demand for interest-only lending among investors.

Further work by officials now needs to be done on the wording in the 2013 Memorandum of Understanding (MoU) on macro-prudential policy to ensure it is consistent with supporting the soundness of the financial system and the Government’s housing policy objective of sustainable house prices, as set out in the section 68B direction.

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131 Comments

30
up

Far too little, far too late

22
up

It is too late in our family. Nieces and nephews and their families have already gone or committed to going to Queensland.

Just started a job I love in New Zealand. If I hadn't, I'd be taking the family abroad.

Ditto - started a new job in January and have a shot at a promotion in the next 6-8 months.

The original plan was to head to the UK in July this year and look at settling there or elsewhere in Europe.

Aah the UK horrible 15 years there, some good friends I left there though, plus wife's Welsh, but months of dreariness and cold, not to mention traffic and paid parking. I could go on.

Mid winter last week, T shirt and shorts, picked kids up from country school, no traffic, no queuing at gates, no searching for park, then off to our local beach for a skim board, slight breeze, but coast was beautiful.

NZ property prices are atrocious, but we will get by, money in UK cannot pay for quality of life we have here. Fishing off my door step, learning to wing foil people friendly, I can go on. The UK taught me how beautiful NZ is and not to take it for granted.

Last bit joined a fishing club, cheap beer, nice food, beautiful view, with park for kids across road, next to wharf, heaven.

13
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Sad to hear that for your family Beanie. A friend's daughter recently bought a family home 30 mins out of Brisbane with tennis court, swimming pool and 4 plus bedrooms for mid $700 k. Hard to believe. It's true, I saw the photos.

11
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My late teenage kids and most of there mates are all planning to go to Aussie after studies completed. A lot of parents will follow. As these and the ones that already have gone, start promoting there lifestyles via social media over there many more will follow. Effect, a couple of generations of the most productive variety gone.... At a time when the population needs to become as productive as possible to support the wave of retirees coming on line.

24
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Give him the tool, but will he use it, and at what level would it be set 8, 9, 10?
Ohmg, there is going to be a consultation with stakeholders, this will take years.

17
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This RBNZ being independent doesn’t seem all that very good for the country. Independent bias thinking can be very dangerous.

Orr has been bleating on about the DTI tool and now he has it RBNZ’s us talking about LVRs again?!?
Right then do it. LVR should be at 60% rather than current 40%. What is their hesitation with the property market? It is screaming for tighter policies?

So Orr asking for DTI tool was just a distraction? Why was he asking for this if he didn’t have a plan? With his wait and see approach why doesn’t he act on IO loans and then wait and see rather than making assumptions?
With the DTI, can it be made so that investors DTI is 1:3 while FHB is 1:5? I wonder if this is a possibility.

So many options but none taken. Let’s just wait and watch while hopes are crushed.

How about reducing mortgages to a maximum of 25 years. My fear is it will go the other way out to 40 or 50 years to keep the flow of FHB coming.

10
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It already is, you're expected to buy a "starter home" on a 30 year mortgage. Then upgrade after 10 years, taking out a bigger loan on another 30 year mortgage. Then 10 years later you buy an even bigger home now that the kids are leaving, with guess what, a new 30 year loan.

Depends how old you are. For older folks, maybe banks might consider it but through other lenders, you'll find they're very strict on longer term loans. Personally, could only get a 20 year term.

I the UK I believe it's 4.5

When I got wed in 1981, the maximum we could borrow was twice my income and half my wife’s. Just enough to buy a 3bed starter home in a small town. One thing we all forget, is that property in all desirable cities worldwide is beyond the reach of most average income FHBs. London, Sydney, Vancouver, Zurich, San Francisco. And yes, Auckland is a desirable city on the world stage before you southerners (Anywhere south of Pokeno) protest. Populations increase, but land is finite and the best spots have long gone.

That was probably more due to high interest rates at the time. Agree about the rest of your comment.

You should probably run the numbers, you would realize that a 30y mortgage at current rates will result in ~50% real interest, which is more than people used to pay with a smaller mortgage o a higher rate years ago.

And so?

So payable interest is actually higher now.

You keep repeating this lie.. Why? A 30y mortgage at current rates will not result in paying 50% in interest. Use the calculator on this site, a $500k mortgage at 2.59% (ASBs 2y rate, far above the 2.19% 1y rate most are offering) means you would pay $219k in Interest, which is less than 50% of the sum borrowed, and far less than 50% of the properties value.

219 is 44% of 500. Does that make you feel better?

Last time I checked 44% was less than 50%, or is there some new fangled millennial maths that changes that?

And at 2.19%, which is the big bank 1y rate you'd pay $182k in interest, which is ~36% of the sum borrowed.

Meanwhile the whingers are pining for the good old days of only being able to borrow 2x income because the interest rates were so high you'd pay 2.5x what you borrowed in interest.

I'd be quite happy with 5x the average income. But 3 is the sweet spot.

No, it's just a meaningless number some are throwing around, you might get your 3x income number if interest rates ever get back to 12%+, but then you'll be whinging about how interest rates are to high and 90% of your mortgage payment goes to the bank in interest.

You should really watch your words and stop lying to yourself and to the rest.

If you believe 2.59%, a historical low rate, will continue for 30y you are either delusional or trying to confuse people. The floating rate might not be accurate either, but let me show you what you get with a 3% interest on a mortgage of 800K, which is still a pretty optimistic number. Remember, we cannot fix a rate for 30y in this country as you can do in the US.

$1,214,220

So, payable interest to your bank would be $414,220 or, 51.8% if you wish.

You will likely end up paying more than this if rates go higher, current bank benchmarks sit between 5-7% so do your numbers.

You are welcome.

Nothing wrong with my words, it's is not I that is lying. It is YOU that said ".. you would realize that a 30y at CURRENT rates will result in 50% real interest"

Current rates that people are paying are in the low 2%range.
And the use of the word real in financial context means adjusted for inflation.. Right now I'd say that interest rates are negative or nearly so once adjusted for inflation if you had a decent measure of inflation.

Have a nice day.

Sure, as other said, if 44% instead of 52% makes you happy because you don't consider 3% current you may take it. The fact we are talking about this also shows how much a small percentage will affect in the total interest a borrower will pay, so consider that long term.

The actual point is that there's a common fallacy of low interest rates, which would be true if it weren't because of the insanity of the current housing prices which interestingly people tend to leave out of the argument.

You really need to start using English words with the normal meaning, not your own made up meanings.

Low interest rates is not a fallacy, its a fact, here and now. Just look at any bank website.

Luckily we live in a democracy and it is not you the one that tells everyone how they can use the English language according to what you think.

I'm confused...I thought the RBNZ had enough tools.

Whenever attempting to assess policy response to asset price speculation, it is helpful to imagine policymakers sitting in their waka listening to 'Dragostea Din Tei' whilst formulating statements about commitments to public consultations, and discussing the relative merits of 'dissemble' versus 'deny'.

There seems to be inadequate political will on the RBNZ's side to actually enact measures aimed at rebalancing investment into productive channels. They're following the Aussies into Hayek's trap (see 'Road to Serfdom') of creating all manner of distortion in the economy via being too loose, simply to get everything else growing faster than nominal wages. Dangerous game when the illusion of upward social mobility is already fraying.

Let's see what happens if DTI limits are implemented and lower income households start crying poor that they can't access enough credit...

Get in while you can!!!

18
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Sorry to say this, but that's a stupid advice, if you are getting in now, you can be locked in for a long time if it's going to be implemented.
"NZ has 'most bubbly house market' in the world, according to Bloomberg"
https://www.stuff.co.nz/business/125452535/nz-has-most-bubbly-house-mark...

Sorry to say this, but that's a stupid advice

He meant to say "get in at the top before the whole shebang collapses under its own BS." He was being facetious.

Awful FOMO advice. If the restrictions are implemented you would wish to have never get in at this stage since that added to increased mortgage rates will have a hammering effect on housing prices. You would end up in negative equity and potentially make your life's worst mistake!

Let's see where A FHB that listens to your advice ends up. I m guessing they'll be $90k out of pocket for rent, house prices won't be significantly lower than today, and we'll have paid another $80k off the mortgage, put a new roof on and double glazing in the house and be nowhere near negative equity.

Wasn't giving advice but just wondering if you could please share your crystal ball.

This is the dumbest think I've ever heard.

...I'm all-in, HODL while houses take us to the moon!

Same mentally, just different slang. I don't really see the difference between the property investors creating FOMO with FHB's and the bitcoin fanatics telling everyone to grow laser eyes and HODL.

Both signs of desperation for other people to buy into your story (primarily for personal financial gain).

At least the crypto mania is "only" hurting the environment. Housing is a basic human need.

I don't think housing is a "bubble" in the same way as meme stocks. There is a genuine structural, prolonged shortage of affordable zoned land and housing in New Zealand. That's what has allowed housing unaffordability to out-last economic cycles. Much as to say people should fear "missing out" because the cost of construction and land is rising rapidly, the fundementals support the price.

In contrast AMC Cinema seats remain unsold and GME stores still have low turnover.

Edit to add:
Undoubtedly monetary policy is facilitating increasing valuations however. I think it may be argued in future that the Reserve Bank did more harm than good with it's application of monetary policy over the last 20 years.

"Finance Minister gives RBNZ debt-to-income tools on condition it avoids impacting first-home buyers 'as much as possible'; RBNZ yet to decide whether to implement mortgage lending restrictions'

The devil is in details. Also as world is talking about it and have to potray that Jacinda Arden government isconcerned have to be seen doing something, so is more of lip service than anything meaningful as Mr Orr will sit on it going with his wait and watch policy.

DTI is good to protect FHB from future disaster as many are borrowing in extreme under FOMO and may over borrow. Not able to buy a house is disappointing but buying and than defaulting as over borrowed is a disaster.

STILL not targeting Interest Only Loan that will mostly effect Speculators.

This passing on DTI from Robertson to Mr Orr is a game that both are playing.

15
up

I wish they wouldn't announce things like this before actually having a solid plan for implementing it soon. All it's going to do is encourage people to jump in now before they get caught out by possible changes, adding even more FOMO to the fire.

Then it's those people's responsibility. They can jump in whenever they want, but they are just the ones who hold accountable of their own actions.

but they are just the ones who hold accountable of their own actions.

Unless you invested in South Canterbury Finance. In that case, Uncle John decided that it was too big to let the punters be responsible for their decisions. Not sure they have the same power with the housing bubbles. The hoi polloi thinks the govt and RBNZ have this. I'm not so sure.

Correct. It should be implimented and should be if not asap at least from 1st July.

Mr Orr has been asking for it since ages so definitely is prepared unless......

it that case they would'nt announce anything as they can't seem to implement anything....but they will soon once the implementation department to oversee everything is set up.

25
up

Ten years too late. Very typical of our highly competent and forward-thinking meritocracy.
DTI is irrelevant now because income is irrelevant; no one is buying with money they have earned. Might as well have a climate-change policy focused on reducing horse emissions from the transport industry.

13
up

DTI is irrelevant now because income is irrelevant; no one is buying with money they have earned.

Spot on. And the money that people have earned is being debased intentionally by the actions of the ruling elite. They're proactively destroying the savings of people's work.

Wouldn't that make it more relevant? They would need to have income to buy if a DTI were enacted, compared to now where you just need equity.

You may be right -- I guess the devil will be in the detail of what is counted as income and how equity is regarded.
I'll be very, very, very surprised if it's implemented in a way that stops anyone from cranking out limitless interest-only loans against their existing portfolio.
Still- go on, Adrian, surprise me. Hope springs eternal.

One of the best comments this year.

16
up

"our financial policy tools can help to ensure prices do not deviate too far from sustainable levels".

LOL what a bunch of clowns. The RBNZ's reckless ultra-loose monetary policies have already made sure that house prices in NZ are well beyond any concept of sustainable level. Utterly ridiculous.

15
up

I am sure in 10 years we will look back at this time in history with bewilderment. Whether prices keep increasing to an even more insane level, or crash.
Just unbelievably poor governance from governments of all colours since 2000...

a current DTI levels there are a lot of mortgage slaves.

To think that the DTI levels can continue to increase for ever just defies all logic.

In the next 10 years we are likely to see the opposite, over supply of housing, no demand due to unaffordability, house price drops or at least stagnation and that is assuming interest rates stay rock bottom.

The only way that prices can continue to rise is if we see either looser monetary conditions (no too much room for that) or wages start to increase at a reasonable clip, which we havnt seen for the last 20 years

19
up

I believe that this country sits in a very precarious position.

It won't take much of an economic shock to obliterate the house of cards.

Yup, whatever happens now every government & RBNZ governor since 2000 with the exception of Allen Bollard have acted in a grossly incompetent way.

Unlikely to be implemented anytime soon and as is stated if it is, it will be over an extended period....more window dressing as there is no way the RBNZ can cause a credit contraction and housing is it in NZ a far as investment goes.

None of this will prevent the correction however.

"will consult with the industry on the feasibility of doing so"

Meaning the RBNZ will check with his masters, which will probably advice against this since it is against their main business model. Unfortunate.

What's next? Consulting the coal mining industry on the feasibility of a coal mining restriction?

12
up

It concluded interest-only lending to investors (or other borrowers) "does not pose financial stability risks, nor do they impact negatively on the Government’s housing objectives".

"We also found that restricting interest-only lending would be challenging to implement and enforce," the RBNZ said.

Ahahahahhahaha.

"Ahahahahhahaha"

Magnificent, insightful and well articulated comment...

I'll give Labour one thing, they continue to search for the silver bullet that will halt the run away train. Good.

Well those are some rose tinted glasses you have on their Mountie! They are at the controls of the train and I can think of a good use for that silver bullet.

A few ideas -
Except for qualified builders, stop immigration to stop further housing demand. Train those of our unemployed that can physically work in building as a condition of the benefit. Stop exporting our trees and make more lumber here. Do 5 minutes research into how we solved the supply problem last time and dust off the pre-fab housing idea (Frankton in Hamilton produced tens of thousands of state houses a year for years). Re-create the ministry of work and build infrastructure now at a "think big" scale while at these interest rates. (Muldoon gets bad press because he was not able to foresee the oil crisis and the attendant inflation)

The saga continues. The ball is back on Orr's court, but is he gonna score or rather just pass it back?

13
up

The fat controller is four years too late with his revelations. Stable door. Horse.

Now let's watch the wheels of bureaucracy turn for the best part of another year

This country has gone from screwed to absolutely buggered beyond redemption under his watch.

If he and bobblehead had any honour they would be committing ritual seppuku.

17
up

Who in their right mind believes that interest-only mortgages "does not pose financial stability risks" AND restricting interest-only lending would be challenging to enforce??!! Really?

Sounds like a case of don't want to rather than unable to, just like Nationals "can't restrict foreign buyers" attitude.

By forcing new buyers to pay interest and capital from the get-go and also forcing investors to stump up more than interest on their current properties will force a lot of people to sell and also refrain from buying in the first place BECAUSE THEY CAN'T AFFORD IT.

Orr, you need to stop enabling people to buy and hold onto properties they actually can't afford.

12
up

I love the "challenging to enforce" excuse. A blanket ban on murder is also challenging to enforce, should we just allow it then?

I think its more fear that if they commit to it and it turns out to be the straw that broke the camels back.

Strangely the back needs to be broken, yet that would be damaging to 'financial stability' so must be some severe cognitive dissonance going on within the RBNZ at present.

about bloody time

The government needs to urgently create a register for ultimate beneficial ownership for property in this country.

There's still way too much anecdotal evidence about buying properties "on behalf of people" in Auckland.

In my street alone three different investors have purchased three old villas in a row in the past year. The first two for 2m and the third for 3m, just a year later. I don't know about you but it smells pretty fishy to me! And you can only imagine what has that done for the perceived price values in our street and surrounding area...

Exactly, they aren’t even quiet about it either.
I sold a property at the end of last year and we had a couple of well dressed foreign born men view the property and make no secret to us or the agents that they were only the person with the NZ residency who would look to buy on behalf of foreign investment groups.

This is just another example of politics have turned into dogma and how blind faith in "the market" pushes right wing politicians (Labour included) to delay any kind of intervention even when it is obvious something needs to be done just because they do not want to look "too socialist".

Labour is 'right wing'. Has been for a long time. Similar across the Anglosphere. If you want 'socialism' go to Japan or Vietnam.

I've always felt uneasy about DTIs. Like LVRs, the effect seems to be locking out FHBs, who are limited in their borrowing by their income from working, and leaving the door wide open for speculators who can still leverage capital gains.

Unless you also control speculation you're just going to see slower price increases, but would-be owner occupiers will still be locked out of the market as was my observation in the UK.

This is precisely why this should be accompanied by regulations to stop real estate buyers to purchase a second house using existing equity in real estate. The effect of this being possible right now is like trying to extinguish fire with fuel.

Exactly. That won't happen, because property investors are a protected class. But it would be too obviously tilting the playing field against FHBs to introduce LVRs without restricting investors. Ergo, DTIs are not going to happen. This is more desperate theatre. Orr will keep warning people that maybe interest rate rises are a possibility, without ever raising them; that DTIs are a possibility, without implementing them; that prices can fall, while doing everything in his power to prevent that very possibility...

You can put your mind at ease.

https://www.interest.co.nz/opinion/110871/reserve-bank-does-seem-set-get...

DTI likely to be at a level that won't impact on FHBs, but will seriously cut back on the ability of investors to leverage up to multiple houses. If rent is allowed as income, a healthy 5% yield would only allow you to borrow ~30-40% of the value of a property. An Auckland 3% yield allows ~20-25% of the value to be borrowed. This would seriously crimp investor's style. Even better if rental income isn't allowed, or if expenses are counted against it in some way.

"speculators who can still leverage capital gains." - Capital gains aren't income. Speculators would need enough real (taxed) income to cover the DTI over all of their debt plus the new property wouldn't they?

Shush JJ, you are disrupting the circlejerk with all this "logic", they don't want none of that around here.

[edited - comment posted twice]

Robertson agrees 'in-principle' to give RBNZ debt-to-income tools [UPDATED].

"IN-PRINCIPLE" lol

No intent and is only noise. Robertson is BS and now will be the turn of Orr.

LOL

CANNOT FOOL ALL THE PEOPLE ALL THE TIME OR CAN THEY....:(

Yes, it is strange wording. So RBNZ hasn't actually been given this tool, yet. When? We'll make an announcement some time in the future on when we will have an announcement on that.

for those that bought in the last 12 months - there could be consequences for their exuberance as all these rules are applied at once to slow the market

Evidence of this is a nearby neighbour bought a 3 and 1 house for 1.1M in Nov last year- paid approx 120K over the valuation at the time- but was desperate to get in because of FOMO. The marriage has split up and with the changes in the interest deductibility rules there are now a glut of lower priced 3 and 1's on the market. The local real estate agent told him she wouldnt think he'd get more than $1 Million for it at the moment (only three 3 and 1 houses in the area are going for more than $1.1 Million - one has been on the market 3 months and the other 2 are big potential development blocks.) So he is now having to rent it - (he needs $200 above market rent per week to cover the mortgage) to avoid taking a loss.

Appreciate this local intel. Thanks

Interesting, what area?

Marriage went to crap in a hurry!

Unfortunately this is not the end but beginning.

Vote for Jacinda Arden

Another great example of Labour shafting its own people and FHB -- say its at 6 times income -- and you are earning 80K -- thats a grand total of $480 + say 100K deposit -- $580K -- not buying you shit in Auckland wellington -- even tauranga -- so basically excluding most FHB and leaving guess who -- oh yes investors!

worst Labour gov ever

Maybe that person who ears 80k just need to save up until he can afford it? Why do you even want to buy a million dollar house when you only have 100K deposit? How can you pay off 900k in 30 years? The truth is people who are high leveraged got themselves into property market, don't actually want to pay off their mortgage by their regular earnings. They expect to pay off that by their equity. And that's the issue we are having here. Everyone is betting their whole life to have their positive equity which in reality the positive equity doesn't always happen. What happens if it becomes negative equity?

Exactly. Ultimately the bank either waves your debt (unlikely) or shoots you under default provisions.

WHY ? because people want to have a home - they can call their own and not be renting lining someone else pockets- where they can be evicted with limited notice -- one thye can paint, decorate,, improve -- and i am sure they dont want to own a million dollar house -just a bloody house- they would prefer to own a 350K house -- but they dont exist --

May i remind you that 80K -- is above ave earnigns for nurses teachers police social workers -- ALL of whom deserve the opportunity to own their own HOme!!!

Exactly. To long have working kiwis being held hostage in favor of the bloated bank debt carcass we call housing investment.

>They expect to pay off that by their equity.

Still haven't figured out how mortgage payments work huh? Increased equity due to house price rises don't reduce your mortgage, and certainly don't produce an income stream to pay the mortgage.

agreed “in principle” to add the tools “on the condition that it is understood that the Minister's agreement is predicated on any implementation being designed to avoid impact, as much as possible, to first-home buyers”.

Banks wouldn’t loan $480k on an $80k income even now. The rule of thumb is banks work on 5X income for serviceability for an FHB.
You are correct, if you only have $80k income you can’t buy much anywhere in the North Island at least.

In my experience, consulting to high-net-worth professional clients, I found as their wealth increases beyond what would be considered normal by the average man-person-in-the street, becomes meaningless. The 11th million has far less meaning than their 1st million. That is so even if they worked their fingers to the bone in a business or multiple high-paying jobs. We now have a situation where there are too many property millionaires who have the capacity to play property-monopoly. Contemplating buying a $3 million dollar property it means nothing to pay $3.5 million. Cost becomes no object. Property investors with $10 million portfolios will simply plonk down another $ million if necessary. No trouble. Such people with 2 or 3 young children won't hesitate to buy $1 million properties for their children

If the government thinks their actions to date are going to stifle price I will be surprised

Yeah. Once you have leverage from an expensive property or two, price becomes meaningless. You're officially low-risk, borrow as many millions as you want, it's all just numbers. I think prices are going to keep going up -- $3m median in Auckland is achievable, why not? There's a shortage, right? The only thing that can stop the money-go-round is if banks clam up, and why would they? If they screw up, they'll be bailed out anyway.

Rising interest rates and stagflation will do the trick

If DTI ratios are applied properly then the leverage won't help much. Investors will move from a world with 60%+ leverage on their portfolios to one with only 30-40% leverage possible. A massive handicap.

Hopefully enough to stabilise or reduce house prices too, removing the whole point from them being in the market. Maybe they'll look elsewhere and invest productively?

The one thing they could do is stop use of collateral in other properties for investors. i.e. you need 40% cash each time you buy another investment property

Absolutely - the influence of the feedback loop created by rising prices and investors using equity to buy more properties can't be understated....oh look prices just went up 30%...ill use me equity to create more demand in the market and buy another house...and so on...and so forth...(where does it end?)

This is fantastic news. The sooner it is implemented the better. For far too long us lucky boomers have had it too good. Many will disagree with me and go on about how hard it was to buy their first home way back. They are talking nonsense of course. My wife and I bought our first home in 1984 for $69500.00. We were on low incomes then and we still paid it off in under four years and then it was worth nearly $100k. We upgraded to a bigger home in 1987 for $145,000.00 and paid that off quickly. Now in our third home which is worth millions. We are very fortunate.

Yeah many of those boomers conveniently forget about this. They will tell us millennials that we were stupid not to have bought 5-10-15 years ago. Straight out of uni or high school, when properties were already considered unaffordable.

Did you have it too good or does this generation have it really bad? Should buying a house be a life long commitment or something paid off in 4 years?

Just saying how lucky we were to pay our first home off under four years. That’s all. It set us up for a comfortable retirement which I achieved in my fifties. And I have never owned a rental. Equities did it for me. In public and private companies. Dividends fully imputed tax wise are hassle free.

Anything more than 30% debt to income ratio does not allow the average person sufficient free cash flow to pay down debt after ALL other normal living expenses are taken into account. Still need to replace that old fridge or car, still need a holiday, school fees, savings plans, trip overseas for a funeral, redundancy, and all other unforseen expenses, etc. - never accounted for in DTI calcs.

Finally. Just locked in my vote in the next election.

Imagine a $1m value house, rented for only 30-40kpa - and there are plenty in the category. At 7x income it now requires equity of at least $720k vs the 800k on interest only speculand is using. Hot potato passes between Robertson and Orr. Now the spuds are clearly with Orr and the tool he had been requesting. Does he have the balls to use it.

Income has to have a key role in setting asset values. To long have we favored speculation over income. Guano is about to get real.

Yes, the numbers will be pretty brutal for Auckland investors. Even if they're still earning an honest income at the same time, it'll quickly be diluted even over a small portfolio. The multiple property leverage train is about to lose its wheels.

That's a confused post, I doubt you own many properties.
Most investors get the bulk of their cashflow from their regular day jobs, not the rental income.

Once you've bought a few houses, that income will be split pretty thin. Hard to see how people will be able to recreate the old ways of leveraging up to 5, 10, 20 properties unless they have an extremely high income or are very patient.

I am assuming that the DTI will apply on a portfolio basis, but I guess the details are yet to come out. It would be incredible if you were able to claim the same salary as income on separate loans for separate properties.

And you would be wrong again in that statement. Let me correct that for ya "Most investors get the bulk of their cashflow via using property debt to avoid income tax from their regular day jobs, not the rental income". That deduction is disappearing too IIRC.

Your post highlights that housing investment has been just about speculation and nothing to do with income.

Great that DTI will apply to all, FHB especially need to be protected from overlevaraging themselves

Does it apply to all?

Hi Jeene,

Am sure even you know that both this gentelmen are playing game with FHB emotions with no intent except to divert the attention from rising house price despite LVR and housing policy. They just need a distraction, which will also make them look that are concerned and trying to take action.

This issue of DTI has been in public domain such a long that is hard to believe that they have not yet worked out the details to impliment.

Remind me of famous dialogue from Indian Jones " If you want to shoot, shoot don't talk"

Great, another new reg for investors to race to get ahead of... They need to just implement these without all the riff raff in the media, like they did when they first implemented LVR.

All the usual suspects are complaining and whingehing worse than a group of old ladies. That'll make them better off...not.

I must admit, I thought it would be better received on here. Great news, and should act to keep house prices down and stop investors at the margins. There could be a real head of steam building up here - DTI, interest deductibility, low immigration, lots of building going on, potentially increasing interest rates...

Seems like big head winds, but the cheap money just blows those headwinds away.

Only if you can get your hands on it. With LVR and DTI ratios, the cookie jar is out of reach for many would-be investors.

And the usual suspect complaining and whingeing worse than an old lady about others complaining. That'll make him better off...not.

You mean like you whinged and moaned when the borders had to be closed for covid? Claimed it was "just a flu" and that we would be worse off if we closed the borders. Why didn't you just get on with and make yourself better off, instead of whinging and moaning?

Why do you not call out investors for whinging and moaning whenever a rule is implemented that threatens their unearned capital gains? shouldn't they be just getting on with it, to make themselves better off?

Your self serving hypocrisy never ceases to amaze me.

It's ok, he redeems himself by his charity...

What's wrong with 'old ladies''?
Add sexist and ageist to your undesirable qualities of self interest

I love you too HM

It concluded interest-only lending to investors (or other borrowers) "does not pose financial stability risks, nor do they impact negatively on the Government’s housing objectives".

Good lord, how can they be so stupid. Its very basic math to see that converting from interest only to P&I in a low interest environment DOUBLES the monthly payments required to service the loan. Remind me again what pricked the housing bubble in US? Oh that's right the wave of subprime loans rolling off their teaser rates, resulting in millions being unable to afford the monthly payments.

Agreed. It has been referred to as the Moron bubble. Perhaps thats why.

Bit of a difference when US subprime loans were given to people without a documented income and poor credit ratings.

Everything is up in the air. Both the hero's are doing time pass, trying to distract and see how topic of discussion has changed- it should be latest data on house price announced, which is still jumping higher and what is Mr Orr waiting for and more importantly discussion should be on - DID MR ORR LIED WHEN HE SAID ON PUBLIC PLATFORM ON 26TH MAY THAT HE HAS DATA / INFORMATION WHICH SUGGEST THAT HOUSING MARKET IS COOLING.

As obviously was fibbing to gain more time and now that is exposed as data proves otherwise, Mr Orr will change the defination of of the phrase : MARKET IS COOLING.

I have attended Bayleys auction this afternoon and am at Ray White's auction right now, the market is still red, red hot. Bayleys had 100% sales rate (out of 6 only) and here at RW multiple bidders are fighting with each other as if the $ millions offered were given to them. It seems money has no value anymore. Huge bids made for really poor houses. A single car park in went for $170'000...

If have the blessing of Jacinda Arden and Mr Orr, what else do you expect.

Now they have started to enjoy the game and aim is to see how much higher can it go.

Thanks for the update. Love your description of the bidders at RW :-)
Here's something else amusing:
https://www.stuff.co.nz/national/politics/300334848/government-paying-25...

That's cunning, misleading and deceitful. Not good at all