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New Reserve Bank figures show that household debt to income ratios continued to blow out right up till the lockdown - and first home buyers were in the frontline

New Reserve Bank figures show that household debt to income ratios continued to blow out right up till the lockdown - and first home buyers were in the frontline

Probably encouraged by the fairly strong upswing in the housing market at the start of this year, the first home buyers were increasingly gearing themselves up to get into their own homes.

The latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio (DTI) show that the FHBs were continuing to borrow more money on high debt-to-income ratios right up to the March lockdown.

In Auckland in March an eye watering 57.5% of the mortgage money borrowed by FHBs was on what could be considered high DTIs - with the amount borrowed being over five times the annual income of the borrowers. 

Across the country as a whole the comparative figure was a touch under 40%.

The figures are monthly, but published by the RBNZ only quarterly. It's a fairly new data series, with information dating back just to 2017. 

What the trend has generally shown is that DTIs were elevated in 2017, eased in 2018, and began to rise again last year as the housing market picked up.

In terms of styling a DTI of more than five as being fairly high, it's worth 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.

So, a ratio of over five is getting up there.

In terms of fleshing out some detail, in March nationwide, FHBs borrowed $1.138 billion to buy houses. Of this, $455 million - or nearly 40% - was on a DTI of over five. 

A year ago, in March 2019, the FHBs nationally borrowed just over $1 billion, with only $308 million of this (30.7%) on DTIs over five*.

You would expect the Auckland figures to be more stretched - and they are.

In March 2020 Auckland FHBs borrowed $497 million, of which $286 million - some 57.5% - was on a DTI of over five.

A year ago the Auckland FHBs in the same month borrowed $390 million, with just $189 million (48.5%) on a DTI of over five.

Looking at these figures, and what is happening to the jobs market and likely the housing market, it is therefore little surprise that the RBNZ is pushing the banks to reduce mortgage interest rates.

*These figures and percentages were corrected from an earlier version of this article.

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78 Comments

15
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I hope they all have secure jobs, unless these are the ones that quickly went on a mortgage holiday.

13
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They've been taking holidays on the mortgage for years.

House prices always go up mate!

I have yet to hear how retail banks will respond. Obviously with ZIRP (possibly NIRP soon) their margins will disappear while their loan provisioning blows out but they have yet to announce the staff cuts that might reasonably be expected given the situation. Some of the smaller banks where already struggling with profitability prior to the crisis.

NIRP - "we're so stuffed we'll pay you to take on debt".

Federal Reserve Chairman Jerome Powell on today's 60 Minutes: "We are not out of ammunition by a long shot. There is really no limit to what we can do with our lending programs."

That's a weird way of saying "buy Bitcoin"...

https://twitter.com/_Nick_Chong/status/1262175976332464129

28
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I often wonder to what degree house prices are affected by the nature of bidding - namely the 'deadline' silent auction that has become so popular over the last few years.
Agents take the top offer as a comparison when market-pricing other homes, regardless of whether the top offer was $1000 or $100,000 higher than the next offer, or even the next several offers.
Surely what the market deems a house is worth should be set by the median price offer. But no, in a sellers market the artificial inflation of prices just makes buyers wince a little more when writing a figure down on an offer, convinced they need to throw a hail mary offer to be in with a chance of securing a home.

As a FHB, others in my situation who have felt more comfortable extending themselves to DTI ratios far beyond what I am comfortable with, have kept me out of the market thus far. They have played the sellers game and added fuel to the fire on advice from their parents and peers that property can only go up in value and 'long term there's no risk'. They have a house, but now face potential financial strife. I have no house, but also no risk of financial strife. Time will tell whether I made the right choice or not/

28
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The sad truth is that they will be bailed out with your money.

In fact with interest rates effectively zero they are already.

True but only if the keep their jobs.

Also watching their deposit evaporate each month might push some to cut their losses

Time to read up on the open banking resolution (OBR) again. You can guarantee the banks have crunched the numbers and factored it in to their profit model.

I feel for you when so many buyers are ready to take on extra debt when they should be trying not too.
If all FHB got a facebook group together to better discuss how to beat REA at the game of pushing up prices I am sure you would win all it would take is a few months of low turnover (FHB not buying) to push listings levels up and then only negotiate with vendors who put a price on the property.
If all FHB did this it would make a difference to what you would pay for sure.
The agents do this them selves when they have meetings and yearly conferences discussing how best to push the housing market to suit themselves.
At the moment agents see FHB as suckers who they can manipulate to pay over the top prices and make an easy sale.
Now thats my challenge to FHB are you suckers or winners I am sure you can beat the agents and not take on my debt than needed ???

Sadly for the FHB ,I've yet to find a vendor who is prepared to take less that the market is prepared to offer. In the real world...Vendors just aren't prepared to drop their price for in your words "sucker" FHB. Why is it he agents fault? Tell us when you sell your next property that you will take the second best offer. I'll be a cold day in Hell.

12
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Do you follow any of the property investment facebook pages? Those conversations are starting to happen.

"I've had an offer, its $30K less than my bottom line, but I'm afraid if I don't take it, I'll miss out and it will get worse".

Have you ever lived through a falling property market? I have and the FOMO you have witnessed here the last 10 years can be replaced by equal FOMO of people trying to get out of the market.

Could you recommend any of the best pages? It’s difficult to separate the wheat from chaff on Facebook.

11
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By best you mean a bunch of uneducated property spruikers in their 50's and 60's trying to convince someone in their 20's to spend too much on their first home purchase? Any of them will be fine.

Honestly they're all quite terrible, I just watch them to follow the sentiment of the market. Its only been recently that I'm starting to see a bit of panic/concern creeping into some of the comments. Before that is been quite a bit of smug type gloating about how rich everyone is becoming and how clever they all are. Some of the legal dispute stuff is interesting to keep tabs on and see how people resolve issues.

Or people saying “ NOW IS THR BEST TIME TO BUY” - just make sure the numbers work :)

"a bunch of uneducated property spruikers in their 50's and 60's trying to convince someone in their 20's to spend too much on their first home purchase" = Interest.co comments section

I couldn't agree more...also with a serious lack of financial knowledge....e.g I made a $xxx,xxx gross profit in 12 months...meanwhile the poor sod was using their purchase price, not accounting for their own labour, and omitting the actual net return. I suspect that they would have made more money merely on the capital appreciation and working a regular trade!

I've watched a close family member go from mocking the idea of de-risking to initiating planning on selling their most expensive property in a two week time-frame. The person has also moved from "the company paying me huge amounts of money must do what I say" to "I hope they will keep me on anywhere in their system" over the same period.

FHB union & lobby group! Someone please so it!

Only if FHB can overcome FOMO as many are sucked into it and RE Agents are experts in playing to their fear of missing out - When the market is going up and even now when the market will fall.

Sure mate. The mortgage holidays run out 6 months time March-September ( NZ elections September!!!!). When the tide goes out, only then will we see who's swimming naked!!!

Pinecone you will eventually get the house you love and for the right money. Buying a home/property is a difficult business for most, at the best of times. But theres no better feeling than knowing its your own home, and that no landlord can tell you how to keep it, or refuses to fix it.

26
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That the banks were permitted to lend such insane amounts to naive FHB is criminal.

But the RBNZ has demonstrated time and again that it works hand in glove with the banks to ensure property prices continue to escalate come what may.

These figures show they were shamelessly blowing a credit driven property bubble.

12
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But but but credit driven property bubble = financial system stability, duh!

Can't agree with you more. Guarantee though that when the writing is on the wall, just before the collapse, the RBNZ leaders will quietly quit, letting someone else take the fall. Then later they will be knighted for their "services to foreign banks"... oh I mean... "services to NZ".

19
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I think that we need to consider what is going to happen to the rest of the world before we get too carried away with making prognostications about what is going to happen in NZ. The USA and China are more likely to become basket cases particularly in respect of grossly over inflated capital assets as a result of stupidly high liquidity. (I have gone on about the folly of this for years) If, as is highly likely, capital asset values crash, the stupidly overinflated property bubble will finally burst. All ponzie schemes end, and the longer they go on the higher the pain when they do.
What do they say - if the USA catches a cold the world catches pneumonia. If both China and the USA catch a cold then - ??????
Lets wait and see where all this is going before we start mortgaging our young first home buyers up to their eyeballs.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=123...

25
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The new saying goes as "When China catches a bat, the world catches pneumonia"

23
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"Lets wait and see where all this is going before we start mortgaging our young first home buyers up to their eyeballs."

I think we've missed the boat on that one.

13
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Yes, but lets not add to it and makes things worse.

If it mattered at any point, we wouldn't be here now. Aspiring and recent FHBs are acceptable collateral damage.

'The latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio (DTI) show that the FHBs were continuing to borrow more money on high debt-to-income ratios right up to the March lockdown'

... Right upto March Lockdown.... Nothing surprising as Market was all time high AND now what is important is After Lockdown.

What happened Pre Corona Virus is History - Important - What happend Post Corona Virus my dear experts of the world.

In Auckland in March an eye watering 57.5% of the mortgage money borrowed by FHBs was on what could be considered high DTIs - with the amount borrowed being over five times the annual income of the borrowers.

This FHB are at greatest risk

Will be hard to see the deposit /equity being wiped out but if in for very long period (as Home) and have not gone beyond / stretched (though doubtfull) should be fine.

14
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We're mad not having a DTI speed limit.

I'm sure the RBNZ know that full well.
As we know they just are unconscionable.

RBNZ can only use the tools they're given. National never game them a DTI tool because National knew that if they did and it was used, they would lose the election.

The problem was that once they started talking about it, it was too late - it would've torpedoed the market. Now that COVID19 looks like it will take care of that there should be another window of opportunity to bring DTIs in and stop the whole mess repeating.

What could possibly go wrong here!

DTI would be based on household income I'm assuming? So two 20 something year olds both employed and receiving full pay - not one losing their job and the other on reduced salary as of April...literally a few weeks after moving into the house?

For a few, that DTI might be more like 10 or more now.

"For a few, that DTI might be more like 10 or more now."

What might it be for a heavily indebted borrower who just lost their job in tourism?
The denominator potentially just fell by 80-100%.

Wait for the market to bottom out before you start borrowing, it may help with the repayment time, for you and your next generation

But who can say when that will be?
Don't want to miss the trough and having the peak hit.
Seems there's at least a good 12-18 months until then though (assuming borders stay shut).

You ever looked at house prices in real (inflation adjusted terms) to see if we're near a peak or a trough?

https://s3.amazonaws.com/keenomics/debtdeflation_media/2009/04/IMG0031_4...

Remember its only got far worse from there for NZ and AUS.

Read Robert Shiller 'Irrational Exuberance' (property section) if you have time and interest to do so. It helps to look for signs of well...irrational exuberance...such as NZ the last 10 years.

I remember returning to NZ (just prior to the GFC) and upon signing up our new eye-watering 8.99% interest rate loan docs, being asked by the bank manager why I didn't have personalised number plates for our cars.. The bank rebranded from green to blue but not much has changed at the coal face, me suspects.

Good to see you back. Are you still searching for a slice of beachside paradise, now might be the time if you are

13
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"Probably encouraged by the fairly strong upswing in the housing market at the start of this year..."

Yep, and by all the spruikers on here like TTP calling people who weren't buying ‘ball-less’ and so on, right before Covid hit. Nice one guys, well done.

Well, they will be monumentally shafted like many housing speculators. And I am going to shed no tear for them, to be perfectly honest.

This is a bit like the trend of mass toilet paper buying that was happening, at the moment you have all these people with stacks of toilet paper at home which they paid full price for while the same ones are on special now

Non home owners advising other current non home owners not to buy at the moment is just blatant stupidity.
People Posting on Interest.Co have been saying this for the last decade and they have been wrong.
Yes, things are different at the moment And there will be some locations have have their prices drop!
However, for many locations now is a great time to be buying, if you are going to have a job and the interest component of the amount borrowed is less than renting that home.
When there is less competition is when you should be buying, it is what “The Man” does, and has always worked!

Bit like that story about the boy that cried wolf eh TM2.

Thing is, the wolf is still out there and the day that you don't take warning, you end up being lunch.

Why habitually refer to yourself in the third person? Rather like Gollum.

Or the 'Sherminator' from American Pie. Here to change the future of many lucky tenants.

https://i1.wp.com/metro.co.uk/wp-content/uploads/2017/03/chrisowens.jpg?...

Always reminds me of this: :)

POLICE had been hearing rumours for months about an eastern suburbs cocaine dealer known as ''the Man''.

At one point, an informant even provided a name - Richard William Buttrose, or ''Dicky'' to his mates.

https://www.smh.com.au/national/nsw/the-man-who-had-it-all-is-jailed-201...

Too right. A great fit: Confidence is high. Repeat: Confidence is high. Say goodbye to Chuck Sherman the boy, I am now a man - The psychology behind this form of illeism is fascinating.

It's really weird. As is calling oneself 'THEMAN(2)'.
In caps, of course.
Some weird ego stuff happening there in that brain.

by the way, great market hyping from Agent THE MAN (2)

'However, for many locations now is a great time to be buying'

Great insight TM2. Actually hamilton is in demand with multi-offers for ordinary lower quartile homes. Not sure about other more expensive props.

I can't see anything very insightful about that comment.

There's a grain of truth to this. Ordinary rents where I live would service a ~$600k mortgage (principal and interest). However, I would rather continue rent payments than have my savings deleted by a falling market.

, if you are going to have a job and the interest component of the amount borrowed is less than renting that home.

That's the key part, isn't it.

The first half of the sentence especially. Many who are renting can downsize and even move in with family or friends temporarily if the worst comes to worst.

FHB can well benefit from saving 10% of the purchase price and retaining more of their deposit if they wait for price falls.

Buying all that toilet paper two months ago though means I haven't needed to restock since or probably will till about spring lol.

A privately owned central banking system can only survive through constantly increasing debt.
It is completely irresponsible by mere nature of its design. It can pretend to have the citizens interests at heart, by claiming it is doing everything it can to hold, or increase inflated asset values, just like any well run ponzi scheme.
Ultimately it crashes, as those at the top take all the wealth, and run for the hills, leaving everyone destitute, and talking about the crash.
Yes, the fed is privately owned, and the global central banking system sits below the fed. ClearNZ, ClearAUS, unlike the Federal reserve, have organisations, that are not listed as shareholders, they simply recieve "fees", for services provided. Ie, distributing freshly printed money. The federal reserve on the other hand, do have shareholders, which are due a steady return of 6% p/annum.
They print fiat currency backed by nothing, relying 100% on the confidence everyone using it has.
Dont believe it? Rather than links, check it yourselves.
All other financial analysis becomes somewhat irrelevant in light of the realisation regarding privately owned central banking.
Make of it what you will.
A fiat currency only loses value.
Ie, 1971 gold 1oz, $35 usd.
2020 gold 1oz, $1750 usd.
It's not that gold has gone up, the price variation merely reflects the loss of the buying power of the usd.

Henry Ford:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning"

100 years on, still true. Funny thing is, 99% of the population don't give a s$#t and if you try to explain it to them, they look at you like you're slightly mad.

Have you heard the phrase 'paralysis by analysis' ? Dont fall in the trap IO

Ever heard the saying ‘fools rush in’

No one could accuse you of rushing in.
'Be wise today so you dont cry tomorrow'

Ok thanks for the advice

So true IO, yet all the other talk gets tiresome, cutting to the chase every so often is worth a go. You never know, it's such a straight forward concept to understand, and can make a massive impact on the way people deal with "money". Cheers for the support.

The history that Ray Dalio gave of all that was great recently. Helped to put it all in perspective for me. And can understand why he's bullish on gold.

Can you give me an idea of where to research "ClearNZ"? Not sure what this is?

You can find ClearNZ on the rbnz website.
Alternatively google "who owns rbnz". It's a long list of companies and entities, that recieve "fees".
The federal reserve is same, and that info is also available on the fed website. 6% payable to the shareholders, only the shareholders are not listed.

Thanks.

The ClearNZ stuff has some interesting info in there.

Check it our - property and stock market - Australia

https://youtu.be/H6lNOwa1_8A

What complete nonsense it is to blame the banks - they are acting exactly you would expect in a market. The blame for the misery of high house prices falls only on the councils - they believe the 'compact city' zealots and restrict land supply to enforce the ideology in the name of preventing 'urban sprawl'.

And yet we have massive urban sprawl... maybe it's not the council's fault after all?

LVR seemed to not to be enough to stop banks from lending over the limits that are responsible, hopefully them and not the lenders that trusted them will be found accountable when the house of cards will collapse.

If you are curious, ASB's mortgage calculator seems to think that 60%!! of one's income in loan repayments is something that you can afford. By most standards ratios of over 30-35% are considered un-affordable so someone explain that to these guys.

https://www.asb.co.nz/home-loans-mortgages/calculator-borrowing.html

Does it assume a 3% mortgage over a 30 year term?

It defaults to 4.45%

Ha I just tried that too.... 7.2x gross income!

Wow. You earn 100 dollars. You pay tax with leaves you with approx 70 dollars. You pay 60 on record low interest rates (aka you buggered is rates go up). You feed, cloth and transport yourself with 10 dollers for the whole year. No advo and toast alright, your on bloody lentles once a day at best.

Perhaps the banks should put a "food parcel" checkbox on their calculators, then you could use 65%.

There are also the costs of ownership - rates & insurance.

Low interest rates, I am afraid, are no bloody use if you lose work hours or job altogether.

This the fatal flaw in the affordability nonsense

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See Party Policies here. Party Lists here.