David Hargreaves says the Reserve Bank's decision to leave existing loan to value ratio restrictions in place means it's unlikely there will be further relaxation of the rules for at least a year

While few seem to agree, implementation of DTI limits will greatly assist FHBs in saving for houses. With a DTI limit, house prices will be constrained from bounding ahead of FHB savings for a deposit.

Why not be consistent and call "DTI""LIR"?
"LVR" = Loan to Value Ratio.
"LIR" = Loan to Income Ratio
Make no mistake D = L, they are the same, namely mortgages.
In the first we compare the amount of loan to the value of the asset, in the second were compare the value of the loan with the income.

The Reserve Bank Governors job is to encourage a market environment that is good for everyone, not just the banksters.

The youth havent experienced a downturn, and are vulnerable to peddlers such as real estate agents, banksters and keeping up with the jones. While it may not help the current housing market prices from falling; due to the lack of affordability, at least he is encouraging the youth of today to save a bigger deposit

As far as I can see, in dollar terms, the $6 billion advanced by the banks in October might have been the most ever for an October month. Of course $6 billion gets you a lot less house (particularly in Auckland) than it once did, so you would expect the figures to be bigger.

Yes indeed: the RBNZ has cut the OCR in half three times since July 2008, causing citizens to borrow from the future to spend today.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion. Link

a 'little hot' can become a 'lot hot' in no time at all
Especially when demand for housing is elastic to changes such as price and credit availability, while supply is relatively inelastic to those factors.

Excellent Article.

Agree that some sort of DTI to be used to protect FHB (Though some may have problem in getting loan approved with DTI restriction but is it not better than taking loan and going bust). Have witnessed many who in last few years specially now with low interest rates are borrowing to extreme. Investors with few house may not have that much problem but FHB specially those FHB who will be buying now under FOMO will be worst hit, if housing market gets hot again from here on.

Labour party was earlier in favour of DTI but seems, now if approached will shy like they have done away with CG as they too now know very well that the ONLY way to a Rock Star economy is through housing ponzi as it effects everyone and is and will always be hot issue (Nothing much in NZ for average locals).

At the moment feeling is that 'Little Hot 'can become and is becoming 'Lot Hot' so in the absence of DTI - RBNZ is going in for capial control BUT could go in for much tighter Capital Control next week than the market is expecting (Just like dropping the OCR by 0.5% instead of 0.25% as market was expecting) if they do not want it becoming"Lot Hot" so is upto RBNZ as to what extra measures they put in place like maintaining LVR, having realized the potential of house price going out of control AGAIN.

Would fully support bringing in DTI, and then dropping LVRs. This would be very targeted at and effectively managed the debt stacking, interest only, doubles every ten, not making any more seminar believer type. In effect, save them from their own greed, and promote investment into other things...like businesses.

Agreed it would help FHB. Its will place FHBs (who have diligently saved a good deposit) in a better position v.s. investor debt stacking for the first time in a very long time. It will make the rent transition to mortgage much easier to justify, and promote the security and stability that home ownership brings.

Having cheap loan(Lower interest) but higher principal (Result of Rising House price) is not what will help FHB in long run as will be too much under debt and if for any reason interest rate starts to rise will be ...................

DTI or any other tool is need of the time and RBNZ meanwhile can control capital to minimize large amount of borrowing going into passive investment by average person.

We can only pray that common sense will ultimately, *finally*, prevail.

Even if it is at least 10 years too late.

In the current non-DTI environment, lowering interest rates does not make people pay down debt or increase consumer spending. Instead it just drives house prices higher.

Adding a DTI would add an upper limit to your borrowing power so you can't just keeping buying more/more expensive houses. This should then lead to deleveraging and extra spending following rate cuts.

Boomers will not allow DTI’s to be introduced just as they stopped capital gains tax. We have done very well as a generation and those who were born after us will just have to wear it and keep struggling.

Ouh.. finally quick break from work... yes, please.. RBNZ always uttering the needs of this tools discussion even under the last Nat co. - some will say.. we becoming nanny state etc.. those that against it (for obvious reasons), then we can simply pointed out.. why the following exist?; traffic lights, Air traffic controller, FDA.. FMA why they've been created in the first place, what is the reason? - answer, Addiction. The only way is to insert a regulatory body, rules, law.. they're all there.. to protect.. those that hopeless in this case $ addiction, a little suggestion of CGT.. look how the market react to it, will not be much different to this DTI. This tool will only come about... after the aftermath, like the recent gun prohibition law, it's nothing change the past 30 yrs, after Aramoana.. etc. - You need a bigger aftermath that affect NZ significantly economic wise, before even DTI to be considered by respective govt. then deployed in the hands of RBNZ.. ask any Nat co supporters. Why it's no no go zone for them. Ouch finish my break..bye.

Is the committee of rate setters composed of people with a vested interest in house prices going up? If so, will this not influence their decision making?

What was not done in 2013 could be done in 2019. It is never too late but the question to be asked, does the current government along with RBNZ have intent to act and solve or do just lip service and let housing ponzi continue.

RBNZ can very well put extra pressure by capital control as was reading a comment, if RBNZ can reduce the OCR by 0.50% instead of 0.25% and surprise the market / price growth as a result can do similar by putting More capital control than what market is expecting to control the lending. Also by doing it, low interest rate will go or should go more towards business instead of passive investment.

The Government needs to up the First Home Loan and First Home Grant income caps if they are going to be adding DTI restrictions. Someone on $80000 with a 5% deposit for a $500000 home is way over the DTI of 5, especially since the bank will slap on however many extra % for the LEP.

Notwithstanding a mini surge in Auckland, it looks like the policy settings are conspiring against another boom.

A DTI stipulation by RBNZ is necessary only if it believes that banks currently do not take into account the total debts of a prospective borrower and their ability to service them against the total income.
This is called prudent lending assessment.

And granting that banks do this, (with some dodgy fiddling at the margins), the best measure to be imposed would be not lending more than 4/5 times the earnings for purchase of a house. That would also dampen house price inflation and increase the borrower's skin in the game.