RBNZ DTI tool for owner-occupiers leaving LVR limits for investors?

BNZ CEO Anthony Healy says RBNZ must be careful with DTI tool not to lock young first home buyers out of the housing market

29th Oct 16, 5:02am by Gareth Vaughan

By Gareth Vaughan

The Reserve Bank may focus its proposed new macro-prudential tool on owner-occupiers, leaving restrictions on high loan-to-value ratio (LVR) residential mortgages to rein in property investors, BNZ's CEO Anthony Healy suggests.

Speaking to interest.co.nz after BNZ posted its annual financial results on Thursday, Healy noted the Reserve Bank is always looking for ways to derisk the banking system because it can't solve the housing affordability, or the house price appreciation, issue.

As reported by interest.co.nz last week, the Reserve Bank has formally asked the Government to add a tool allowing it to place limits on debt-to-income (DTI) ratios for residential mortgage borrowers to its macro-prudential toolkit. A spokesman for Finance Minister Bill English said English had asked the Reserve Bank for further information, with the Government to "make a decision in due course."

Healy said the Reserve Bank would need to be careful about where it set any DTI ratio so as not to lock young first home buyers out of the market.

"If they introduce the debt-to-income restrictions I think they're more likely to focus that on owner-occupiers and focus the LVR restriction on investors," Healy said.

"And if they were to make that completely separate treatment in that way, then that actually might make sense. Although they'd need to be careful at what level they apply those restrictions. Because of course young folk coming into the market buying their first home, who more often than not have more upside trajectory in their future earnings, you've got to be careful that this new restriction doesn't lock some of them out of the market because you take, for instance, a current income," said Healy.

In 2014 the Bank of England introduced rules through which mortgage lenders must constrain their proportion of new lending at loan-to-income (LTI) ratios at or above 4.5 (four-and-a-half times a borrower's income) to no more than 15% of the total number of new mortgage loans. And in 2015 the Central Bank of Ireland also introduced LTI ratio limits. Loans on primary dwelling homes in Ireland are now generally subject to a limit of 3.5 times loan to gross income. For banks this limit should not be exceeded by more than 20% of the euro value of all housing loans for primary dwelling home purposes during an annual period.

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46 Comments

by PocketAces | 29th Oct 16, 8:31am 1477683093

The Reserve Bank's job is protecting other banks, it is not there to do the government's dirty work, it is way, way past time the govt did something about this whole housing mess and the popularity of the parasitic business of landlording.
Here are a few suggestions to sort the housing market out
Hit foreign buyers hard with any tool that is available since fta's removed so many, and include ALL foreigners, no more cherry picking to make the number look low.
No negative gearing.
Make all investors in areas where housing is in short supply, build new, no more buying existing houses to become a landleec.... I mean landlord.
Re-write tenancy laws so that people who either cannot or choose not to can rent and have a stable life, without the risk of being tipped out when the landleec.. I mean landlord decides to cash up on a property.
At the risk of sounding very right wing (in which case I would slash my wrists), do away with welfare for landleec.... I mean landlords in the form of accommodation top ups. Make them meet their market.
Stop passing the buck to the RBNZ

by MikeM | 29th Oct 16, 8:56am 1477684568

Banks are becoming worried about further regulation because it will hamper their ability to grow mortgage debt at a faster clip than GDP growth. As far as I'm concerned, it's not about what's best for them but what is best for our economy and society.

by THE MAN 2 | 29th Oct 16, 10:22am 1477689744

Pocket Aces, you should only be commenting about subjects you know something about!
You call landlords parasites?
How the heck are they parasites when in Auckland they are subsidising tenants living costs?
You also state that tenancy rules should be rewritten so that tenants have the right to stay in a property for as long as they like?
What a ridiculous suggestion due to the
Fact that there are so many less than average tenants out there that do not respect anything.
It is not all"Beer and Skittles" being a landlord, but done correctly with positively geared property and properly managed then it is very rewarding financially.
You can not tell me Pocket Aces that you wouldn't want a passive income from capital gain and rents if it was offered to you?
Doubt anyone on this site would despite them denying it.
It is still very possible to build wealth in their country.

by sharetrader | 29th Oct 16, 10:26am 1477689984

the government subsidies landlords all over NZ not just Auckland.
it is in the form of accommodation supplements and tax treatrment.
which is now costing the taxpayer 2 billion + in the last year and still rising.
you will say without it they will not be able to afford to rent correct
and then what happens to all those landlords with empty houses they can not tenant
they have three choices
dip into their own pocket to keep it going without a return
sell up and move on
or lower the rents.
the simple fact is subsidies distort any market and the subsidies for rental house owners are one of the driving reasons to invest in rental housing

by THE MAN 2 | 29th Oct 16, 10:45am 1477691136

As far as I am aware I get no government handouts from my tenants.
As for the tenants that do get accommodation allowances, then if they weren't then they wouldn't be able to afford a rental.
We are lucky that we live in a country that takes responsibility for all citizens unlike many other countries.
Too many people think that we owe them a living when we don't!

by PocketAces | 29th Oct 16, 10:52am 1477691536

You seem to be happy to think that the country owes landlords a living. Change is coming.

by Simon | 29th Oct 16, 12:27pm 1477697266

So the tenants that can't afford to rent leaving the houses empty vaporize? They have no where to go. The govt knows this. Either pay 2 bill in accommodation supplements or a LOT MORE THAN THAT being a govt land lord providing state houses and running them very inefficiently.

by sharetrader | 29th Oct 16, 6:31pm 1477719077

how would the government owning most of the rental stock over a private landlord owning a few make them less efficient
economics of scale would say the exact opposite .
when has a small operator ever been able to out produce sell or service a big operator at a better price point
don't let ideology get in the way of economics

by PocketAces | 29th Oct 16, 10:56am 1477691766

First up, no, I would not want passive income from rents as it stands in this country! At all.
I know a lot about this thing that has grown like a cancer since the mid eighties, I was there, in real estate at the time, watching vendors being stung by "property investors", there was one particular guy who used to come into the office and demand to see listings (which salespeople allowed him to, that is another story) he would demand to know what situations of stress vendors were in and I know of at least one occasion when he purchased a house under circumstances that were actually illegal. I knew then this was wrong and where it was going to lead, to fewer and fewer people unable to buy. I got out of real estate quickly as that was a game I simply could not play. It may not have served me well financially but where my conscience goes, is a totally different story.
I am going to put it to you, that "property investors" have been a contributing part to falling social standards among people. A loss of hope often leads to a loss of giving a toss.
Other contributors are the demise of small businesses that have morphed into giant corporations. An example of which would be, when we were kids the rubbish was picked up by the contractor who OWNED the business, he also owned his own home. Now we have waste management controlling everything and the guy that would have been the contractor in my day, is now just an employee and probably unable to earn enough to buy. The last major contributor is likely to be drugs, "P" has ripped a huge hole in our society.
If it is "not all beer and skittles being a landlord" why do it, is your huge capital gain really subsidizing tenants or is it subsidizing people not paying others properly so they can afford to live and maybe even buy their own home.
On long term rentals, you need to think outside the box a little.
1) It would not have to apply to every rental
2) It would appeal to a better class of tenant.
I am not going to go into that any further, as I am currently working on a model for such tenancies.
There is much to be done to restore our society, admittedly getting a handle on substance abuse is probably primary, but having dealt with that, people need to be able to attain home ownership and stability into their lives.
While it may be possible for anyone to achieve wealth through property investment it is absolutely impossible for everyone to, for every house a landlord owns there needs to be one family that cannot own. It is possible for everyone to own their own home however, and although that too, is never going to be the case, the ability must be there, and people do need to be able to live in somewhere to call home, whether owned or rented.
Change is on the way, because it has to be.

by THE MAN 2 | 29th Oct 16, 11:03am 1477692200

There are always going to be renters just like there is worldwide.
Why have rentals?
Because we provide a service that the country requires and provides a lifestyle that not many occupations can provide.

by rastus1 | 29th Oct 16, 11:19am 1477693143

I think you miss the point. Your model should be based on an economic return, not based on a return based on poor govt policy. This poor policy is causing economic chaos, billions of dollars have flowed into housing...so now we have a very similar housing stock, but now funded by billions extra on loans. These billions should have gone into productive Long term assets - assets that will help the country through a down turn. So when the tide goes out, what will NZ inc be left with? Rotten housing stock that's all. This is why so many of us are frustrated with this govt and the property spruikers such as you who think it's all marvellous.

by PocketAces | 29th Oct 16, 11:48am 1477694898

Yes there will be, but not to the point of vast inequalities as have arisen with the rise of this rentier class. There were landlords when I was young, they generally owned things like blocks of flats that people rented for a while between leaving school and getting married, whereupon they soon purchased their own homes. There was never such a large number of houses in the hands of landlords by proportion as there are now. You are kidding yourself.

by Zachary Smith | 29th Oct 16, 12:50pm 1477698640

"rentier class" = boilerplate Marxist terminology. I'm pretty sure very few "normal" people use the word rentier in day to day life. BTW this is the first time I have written this word.

by PocketAces | 29th Oct 16, 12:59pm 1477699196

Few people use the word pantechnicon, either, however, it is a word, wherever it came from.

by Zachary Smith | 29th Oct 16, 1:21pm 1477700509

A silly word much like rentier. I was just pointing out the tired old Marxist slogan aspect of it. Apparently it includes people who derive income from shares and interest too.

Strictly speaking negatively geared landlords are not in this class as their holdings cost them money each week although they dream of being there one day.
Fine then don't take my advice and carry on with the outdated slogans! See where it gets you.

by PocketAces | 29th Oct 16, 2:56pm 1477706171

Just one thing about Marx, he is likely to be proved to have been bang on.

by Zachary Smith | 29th Oct 16, 3:23pm 1477707819

This is why you are not going to get anywhere PocketAces, you need something a bit fresher and a bit more realistic than Marxism.

by PocketAces | 29th Oct 16, 4:12pm 1477710769

And pray tell, just what is that?

by Zachary Smith | 29th Oct 16, 4:28pm 1477711688

Something that inspires people and actually works?

by PocketAces | 29th Oct 16, 4:39pm 1477712358

Oh wow!! Never, ever would have thought of that.

by Zachary Smith | 29th Oct 16, 6:11pm 1477717884

After giving it some careful thought I have had an epiphany of sorts and that is I really do like things just the way they are. Things only need a minor tweak here and there, around immigration objectives and law and order, but mostly just keep the status quo.

by PocketAces | 29th Oct 16, 7:02pm 1477720959

Well if there is one thing I can assure you of, is that nothing ever stays the same, the path we are on is one of change, you will, barring accident, almost definitely live to see driverless vehicles becoming the norm on the road, I even might do, that sort of thing is going to drive (pun unavoidable) much change. In many ways you seem much older than me, in a stuck in the mud kind of way, in fact I think you are the one who is retreating to old ways.

by PocketAces | 29th Oct 16, 12:21pm 1477696884

Furthermore, you comment that landlording provides a lifestyle that not many occupations can pretty much confirms that the settings are all wrong, it should not be doing that, I'm afraid. That it does confirms to me that government for a long time has pandered to class that should not really exist.

by Simon | 29th Oct 16, 12:42pm 1477698176

I put in 30 plus hours a week researching mainly and otherwise working on property investment.

Those that think it's easy money for no effort are the ones who buy in auckland after prices already gone up, the ones that end up losing a lot of money.

by scarfie | 29th Oct 16, 3:08pm 1477706904

Word done is when you produce something.....you just do a job. Give up your free loading and and actually do some work, then come back and tell us what easy is.

by Simon | 29th Oct 16, 3:15pm 1477707325

If being a landlord only involved use of 'free' resources then the govt would have no problem doing it.

All successful property investors are extremely hard working. Most so passionate about property that they don't even consider it work.

So work only involves producing things? So the entire services sector in nz employees ppl who aren't really working?

by Zachary Smith | 29th Oct 16, 4:16pm 1477711005

Scarfie, do you believe that all income that does not arise from work be abolished? That's what I get from your comments. If that is so then that's pretty radical.
Rather than giving income to people according to their need (Marxism) you believe that people should only receive income according to the productive work that they do? No interest, no dividends, no profit etc?
We are talking about a complete overhaul of the capitalist system.

by THE MAN 2 | 29th Oct 16, 5:03pm 1477713796

If it was the case then there would be a lot on here that would be begging in the streets like many countries.
What are people's thoughts on benefits then?
Surely that is unearned income?
Many make a career out of it and have no qualms in receiving it.
Professional landlords do,a good job nowadays as if they don't their houses will be vacant.
Landlord bashing gets very tedious!

by THE MAN 2 | 29th Oct 16, 9:28pm 1477729736

Why should providing rentals to needing people be wrong to provide a very comfortable income.
How is it any different to any other business?
Is owning a MacDonalds franchise that makes people fat a more worthwhile business in your eyes?

by Brendon | 29th Oct 16, 9:43pm 1477730603

There is nothing wrong with a landlord providing a good quality affordable rental using a dividend yield model. There is a problem when they drive up the price of housing with a capital gains business model...

by THE MAN 2 | 29th Oct 16, 10:05pm 1477731937

Fair enough Brendon.
The fact is though that I don't beleive investors want to drive prices up at all, because it is not in their best interests if they want a good rental yield.
The higher price they pay is more money they lose if it is a negative yield which I dont beleive in.
The word investor is used too loosely as I have said an investment needs to be positive rather than negative.
Don't personally think rental losses should be allowed to be offset against other income.
It is overseas buyers and existing homeowners that are paying the prices as I see it in Auckland.

by PocketAces | 29th Oct 16, 11:08pm 1477735722

Thing is, if they don't push prices up then where will the tenants come from, they will have been able to afford to buy themselves.

by profile | 29th Oct 16, 11:29pm 1477736947

TM2 - Of course McDonalds is a more worthwhile business - it has to operate in a free market. It's profits are not jacked up by vested interests. In inner Auckland suburbs it costs 2.5x more hamburgers to buy a house today than it did in 1995 (when big mac index started). If housing was operating in a free market it should cost roughly the same amount of hamburgers today as it did then and certainly not the 110,000 extra hamburgers today (from Greg data last month). To contest NZ housing is like any other business is naive.

by Peri | 29th Oct 16, 10:41am 1477690894

Healy makes no sense and is talking his book. It is disturbing he is running a major bank.
RBNZ has shown high DTI loans are being lent more to investors than other groups.
FHBs are not creating significant systemic risks, it is investor activity more than any other which has exploited easy credit.
A DTI limit of 5 or 6 is should not affect responsible borrowing by FHBs, but will significantly curtail the dangerous system risks created by investors who refinance and recycle their capital gains into additional house purchases.
Targeting FHBs and owner occupiers would be perverse and ineffective.

by THE MAN 2 | 29th Oct 16, 10:49am 1477691393

I personally don't know any investor that would buy a rental with a return of 2 or 3 per cent.
Investors want to buy as cheaply as they can so try to push prices down rather than up.
I think you are underestimating the other buyers whether it first home or otherwise.
Stop putting the blame on investors who are providing a worthwhile service that NZ needs.

by PocketAces | 29th Oct 16, 10:54am 1477691661

Most sales go to investors, prices are going up, potential homeowners then cannot buy, you are pricing others out so that you can then turn them into a reluctant clientele. That IS what is happening, not your scenario.

by THE MAN 2 | 29th Oct 16, 11:01am 1477692068

I do not force up prices when I buy Pocket Aces.
I always buy at under true market value for a property, but I am not going to go into that.
How can you say that most sales go to investors?
They are speculators if the property is negatively geared.

by PocketAces | 29th Oct 16, 11:49am 1477694979

Then when all this folly is over, you may survive, I don't know, but over it really has to be.

by Peri | 29th Oct 16, 11:56am 1477695361

Agree absolutely in the distinction between proper investors who are positively geared, and speculators who are negatively geared. My concerns are only with latter, particularly those that operate on the basis of refinancing capital gains and recycling those gains with additional leveraged purchases into the market for existing homes. That practice of actively accessing credit against price rises is exceedingly dangerous from a system perspective, particularly when the elasticity of supply of the property market is low.

by PocketAces | 29th Oct 16, 11:58am 1477695514

If every investor were only able to operate under those conditions, they probably would not be a big problem, there would not be huge capital gains to rely on, and negative gearing would not even be a thing. There would be far, far fewer of them, and far, far fewer properties in the hands of them and these discussions would not be being had.

by THE MAN 2 | 29th Oct 16, 12:54pm 1477698885

Totally agree, and I have said so many times that Auckland prices are ridiculous, but dont believe you can blame true investors.
We all know who the people are that are forcing the prices up in Auckland as they don't care what they pay.
Just come from an Auction in Chch 50 year old,summerhill stone, tidy, 3 bedrooms on full section with no garage but plenty of room for one.
Sold to young first home buyer for $430k plus say another 20k for garage so about $450k.
Think I was the only investor there, so the investor market has definitely been screwed by the new LVR requirement.
Fair price for it though, but far better buys around if you look!

by PocketAces | 29th Oct 16, 1:06pm 1477699594

Perhaps the fhbs actually liked the place.

by THE MAN 2 | 29th Oct 16, 2:05pm 1477703123

Off course they must have liked it and I think it is great that they did.
In Chch if you don't own already then you should be buying, because it is still easy enough to buy your first home.
If the Reserve Bank brings in the DTI requirements at anything under 6 then the first home buyers are stuffed.
It just means there are more young couples going to rent forever.
Some will disagree on here, but I am telling you prices aren't going to drop in Chch, although the clued up ones on here will say they will.

by Roy1 | 29th Oct 16, 10:56pm 1477735005

How Right

http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11736922

by keywest | 30th Oct 16, 1:10am 1477743004

Agreed, most investors would agree we want controlled price growth and not runaway prices...I think the good news is the perennial landlord bashers on this website who are the minorities of the minority will be sadly disappointed as one thing National know is to not screw up the property market, I find some of the commentators are on Save / Repeat / Save / Repeat, surely editorial can start editing out the tiresome arguments from both sides

by kiwimannz | 30th Oct 16, 2:47pm 1477792059

No one is against investor but speculators and as the government is going in extreme to protect speculators and help non resident buyer - is the reaction of the people (may be in extreme but who is responsible).

Average kiwi voted them to support and work for them but not only are they not but making fun which is evident from the smirk on their face when on media and as being wrong if no smirk are tensed to respond to their lie, denials and manipulation.

Election time not far off.