The recent upswing in the housing market is coinciding with an upsurge in the numbers of people stretching themselves further financially to buy houses.
A crunch of the latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio shows that the amount of money borrowed on high debt-to-income ratios has lifted sharply recently, after declining though 2018.
The figures indicate that both first home buyers and other owner-occupiers are now financially pushing themselves harder to get into houses. This is happening both in Auckland and across the rest of the country.
But, while owner-occupiers are stretching themselves more too, it's the figures for the first home buyers (FHBs) that are the most eye catching.
In December 2019 (the latest month available), the FHBs nationwide borrowed $1.216 billion for house purchases.
Of this some 39.3% of the amount advanced was on mortgages where the amount borrowed was more than five times the annual income of the borrowers. Bearing in mind that the Bank of England, for example, when it introduced limits on DTIs in 2014 set a 'speed limit' on the amount of mortgages banks could advance that were above 4.5x annual income.
In other words, a ratio of over five is getting up there.
For the same month a year ago the amount of money borrowed by FHBs at DTIs above five was 31.2% - so that's quite a rise.
In Auckland (as you might imagine) the figures and ratios are even more bracing.
In December 2019 Auckland FHBs borrowed $555 million for house purchases.
Of this, some 55.3% was at a DTI of above five.
For the same month in 2018, the percentage was 50.8%.
The DTI data produced (it's monthly figures, but released only quarterly) by the RBNZ is a fairly new series, so covers only back as far as 2017.
What the data shows though is that DTI ratios were high in 2017, declined in 2018 and are now ramping up again.
And it's presumably no coincidence that this ramping up is occurring at a time of resurgent house prices.
It's also worth mentioning at this point that I had good crunch of the November figures too - and they showed exactly the same pattern, IE of a sharp move upward in the amount being borrowed at DTIs of over five.
And no, this is not just a story about the FHBs, though their figures are the most eyebrow raising.
On a nationwide basis, other owner occupiers borrowed $2.769 billion in December 2019 to buy houses.
Of this, 33.8% was at DTIs above five.
A year ago, in December 2018, the percentage borrowed by this grouping on DTIs above five was 30.7%.
In Auckland, owner occupiers borrowed $1.178 billion in December 2019.
Of this, 46.9% (up from 44.1% in December 2018) was at a DTI of above five.
It's all going up
The other point to note is that these percentages are all moving up at a time when much more generally is being borrowed.
The RBNZ's mortgage lending by borrower type figures released recently showed that in December 2019 the amount borrowed was up nearly $1.2 billion compared with the same month a year earlier.
And the first home buyers continued their march, moving to a new record high share of the amount borrowed, at 18.5%.
The total amount advanced in mortgages last month was $6.536 billion, up from just $5.371 billion in December 2018.
What will the RBNZ make of all this? It will be watching closely that's for sure.
The central bank expects house price inflation to peak at 7.7% this year and then start declining. Westpac economists, who were first to pick a significant upswing in prices, are now expecting house price inflation to hit 10% by the middle of the year.
Given all that, the mortgage figures and DTI figures in coming months will be well worth watching.
Remember that in both early 2018 and 2019 the RBNZ officially relaxed its loan to value ratio (LVR) limits. This has made it easier for people to borrow - as of course have the low mortgage interest rates.
Will the LVR limits be tightened again?
The LVR limits, first introduced in 2013 as part of a then new 'macro-prudential toolkit' for the RBNZ, were aimed at preserving financial stability. At the time they were introduced the RBNZ was concerned about the amount of lending banks were doing at high LVRs and the risk this carried if there was a big drop in house values. The measures have been successful in reducing the proportion of high LVR loans on the banks's books.
The RBNZ generally reviews the LVR settings in its twice-yearly Financial Stability Reports (FSR), issued in May and November.
The central bank had been widely tipped to relax the LVR settings again in its last FSR in November 2019. However, in weeks leading up to the release of that report, the upswing in the housing market started to become more apparent and in the event the RBNZ held fire on any further relaxation of the limits.
With what's happened subsequently there may now even be some expectation the RBNZ could tighten the LVR limits again at its next FSR release in May.
Maybe time for a DTI measure in the 'toolkit'?
What is missing from the RBNZ's 'macro-prudential toolkit' is some kind of measure to control mortgage debt-to-income ratios. Something like a 'speed limit' on the numbers of high DTI mortgages that can be issued. The RBNZ didn't give serious consideration to having a DTI measure ahead of the toolkit's creation in 2013 and - with the benefit of much hindsight - this is now looking like an increasingly glaring omission.
Attempts by the RBNZ to get a DTI measure introduced into the 'toolkit' ahead of the 2017 election were snookered by then Finance Minister Steven Joyce, who insisted that the RBNZ consulted on the proposals first, and then the whole thing was swallowed up by the election.
The RBNZ has consistently said since that it would still be keen to see a DTI measure available - though has stressed it would not be used now.
The question of the RBNZ getting such a DTI measure is now being considered as part of the second phase of the Reserve Bank Act review.
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.