Latest Reserve Bank figures on household debt to income ratios show that still more house buyers are borrowing more than five times their annual income

Latest Reserve Bank figures on household debt to income ratios show that still more house buyers are borrowing more than five times their annual income

The trend for house buyers to borrow ever higher amounts relative to their incomes is continuing, according to the latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio (DTI).

The RBNZ has been producing the DTI information, based on information supplied to it by the banks, only since 2017.

What the trend in the quarterly-produced series has shown is that DTIs were at fairly elevated levels in 2017, but then dropped fairly markedly in 2018.

However, since then it has been onwards and upwards*. (See note at bottom of article)

As mentioned, the data is released quarterly - but shows a monthly breakdown. So, I've focused on the latest month - June - and compared that firstly with the March 2020 figures and also then with June figures for last year.

The figures break down the DTIs of first home buyers and other owner occupiers nationwide. And they also break down FHBs in Auckland and other owner occupiers in Auckland.

As you might expect, the Auckland DTIs are way higher than those for the rest of the country.

While what you might regard as a 'high' DTI is subjective, the RBNZ monitors closely borrowing that is five times or more annual income.

The latest figures show that nationwide in June first home buyers nationwide borrowed $1.093 billion, of which $446 million (40.8%) was borrowed on a DTI of five or more.

In March 2020 the percentage of FHB borrowing that was on a DTI of five or more was just under 40%, while in June last year it was just under 33%.

In Auckland, the FHBs borrowed $446 million in June 2020, of which $261 million (58.5%) was on a five-or-above DTI. That percentage rose from 57.5% in March 2020, and just 48.6% in June last year.

It's not just the FHBs gearing themselves up more though. The owner occupiers are too.

In June 2020 owner occupiers nationwide borrowed $2.186 billion, with $784 million (35.9%) of this on a DTI of five or higher. That was up from 33.7%  in March 2020 and 30.2% in June 2019.

And in Auckland - as you would imagine - the figures were higher. 

Auckland owner occupiers borrowed $854 million in June 2020, with $438 million of this (51.3%) at a DTI of five or above. In March the percentage was 47.2%, while in June last year it was just 43.3%.

The RBNZ has long been enthusiastic about having some kind of DTI control measure available (though not for immediate use) in its 'macro-prudential toolkit' - along with such things as loan to value ratio (LVR) limits. The current upward trend in borrowing at high DTIs is presumably only reinforcing that. The issue of a possible DTI measure is included in the ongoing review of Reserve Bank legislation

*The latest DTI figures have been affected somewhat by the fact that In April 2020, an unnamed "major" bank made what the RBNZ described as "structural changes" to their reporting methodology. This did have an impact on the numbers of mortgages categorised as being at high DTIs. An RBNZ spokesperson said, however, that while the movements from April onwards have included both "real world effects" and an impact from the change in reporting, "the impacts are in the same direction".

"If we exclude the bank in question from our analysis, we would still see an increase in high DTI of 5+ from March to April." 

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"In Auckland, the FHBs borrowed $446 million in June 2020, of which $261 million (58.5%) was on a five-or-above DTI. That percentage rose from 57.5% in March 2020, and just 48.6% in June last year."

If we assume the majority of these folks also borrowed 90%+ LTV it's going to be a slow motion car crash as the economy slows and asset prices slip.


This is a wave of over exuberant people (who haven't faced income loss) and never owned a home. This lot will run dry over the next 3 - 6 months, then the real picture will unfold.

The banks (including the central bank), believe that a 6 month mortgage holiday extension is enough to get people across the "GAP" to normal levels ......... but what if Covid and its ill effects still persist, after all no one knows how wide this gap really is ?

Also do people really think that "Once this is All Over" there will be tons of investors, tourists and foreign students alike (waiting at NZ's portals) to pour in money and prop the economy to pre Covid Levels in an instant ?

If you look at the RB and governments intentions, they will never allow house prices to slip or mass mortgagee sales. They will simply paper it up with printed money.

If you know this to be true, then borrowing to the hilt might not be a bad thing. Because if you get into trouble later, nanny government or RB will give you a hand out. Yes that might be giving you a forever loan holiday, it might be by giving you any lost income back because of some "emergency", it might be that the interest rate difference between when you took out a loan and when you get in trouble is so low, that payments are peanuts. But don't worry, they will bail you out, no matter the cost.

Which is why I'm quite disgusted by the RBNZ. They took off the LVR restrictions in March and threw FHBs into the fray as cannon fodder to prop up existing holders.


Human nature hey. Mortgage rates are down so instead of being grateful that payments are more manageable, everyone leverages themselves to the hilt.

Such is the power of wanting a nice place to live...

pity that most buyers are getting a relatively cold damp box instead of somewhere nice to live.

Mortgage interest rates down, serviceability testing down to 5.8% with some banks, so the same income lets you acquire more house debt. Not a surprise.

And paying more to buy resulting in bouse price rise.

yep, well the low interest rates are supposed to generate inflation.. and they are, pity the CPI doesn't include house price inflation tho.

The problem with recessions and mortgagee sales is its last - in -first- out .

Its always the most recent, often naive buyers who jump in boots and all when the market has been overheated for years and likely to unravel

100% correct. And these are all the typical features of any Ponzi scheme - the last ones are the ones who get shafted the most.

But the same will happen with the share market and any other rates-sensitive asset classes (all such assets are now being inflated to a bubble status, not just property, which might be the most inflated of all, but definitely not the only bubble): the latest, most naive investors will be the first to panic at first signs of volatility, and to crystallize their losses. We have already seen this happening with many Kiwisaver investors a few months ago.
I could not believe when I saw how many naive investors were flocking to buy shares of the Hertz stock, for example, some even after the New York Stock Exchange had stated that it was looking to de-list the Hertz stock, action which will seriously affect its trading liquidity..
The current policies of many central banks are suicidal - there is serious risk that it is not going to be pretty when this unwinds.

It's quite simple, the lower the interest rates, the higher the DTI.
(I have explained multiple times before DTI is a false ratio, you never mix a financial position figure with a cashflow figure. It should be ETI E = Expense)
Then we'd have LVR or LTR for consistency, comparing the 2 Financial Position values and ETI comparing the 2 cashflow measures

It's quite simple, the lower the interest rates, the higher the DTI.

Rubbish. Japan has had low interest rates for years and mortgage burdens to income have decreased. Similar has happened in Europe and in the U.S. These sweeping generalizations faking it as universal truths should have died a long time ago.

In New Zealand, lower interest rates just get capitalized into the price, as residential property is just another "yield asset".

On the other side of this is the immigration ponzi, ensuring excess demand at FHB level, meaning any borrowing capacity increase for individuals is just poured straight into house prices, instead of having a beneficial cash flow impact.

Probably good then that the youth of New Zealand have the prospect of a few years of lighter immigration levels to counter some of the Reserve Bank's passionate inflation of asset values.

only if poor regulation lets the banks lend at frankly stupid DTIs

DTI make a lot more sense (as interest rates can go up and down). If we had DTI limits from the start, we wouldn't be in anything like the mess we're in now.

Remember when the OCR was believed to have a "neutral position" (around 4.5%) . 6-7% retail mortgage rates at minimum.

4.5% OCR would be anything neutral. If mortgage rates went anywhere near 6% the economy would fall over.

Have to agree. Particularly with a primary residence. People look at the loan amount and the total servicing cost. But never really factor in how that servicing cost is broken down and what that "debt" means (ie how much interest vs principal).

Ie. If you had a $500,000 mortgage at 6% for 30 years. You're paying $579,191 in interest. Vs a $500,000 mortgage at 2.45% you'd pay $206,547 in interest. The difference in the interest your paying to the banks over 30 years is $372,644.

Even if you added that difference in interest to your $500,000 @ 6% loan, to buy a more inflated asset $951,835. (ie 500,000+372,644=$951,835). You'd still only pay $393,198 in interest over 30 years which is still circa $180K less than the $500,000 loan @ 6% from yesteryear.

So while the asset price may be inflated, you're giving a smaller proportion of interest to the bank and paying off a larger proportion to yourself vs the bank from day dot. Which is effectively savings and is getting you into a position of owing less to the bank quicker.

Can you explain what you mean a bit more? To make it simple, assume Person A takes out a 500k loan at 6% over 30 years. They will pay 1 million (ish) according to the bank calculator. Assume Person B takes out a zero interest million dollar loan, and pays it off over 30 years. (Assume the house is identical and the difference in price is due to asset inflation,). Why is Person B better off than person A, given that they've effectively paid the same amount of money for the same house?

Which places the emphasis back on debt serviceability. i.e how much of your wage is going to paying the mortgage

However, that isn't the only factor, because if everyone is leveraged up, then interest rates can no longer go up without causing massive pain (as Orr says there is much more debt than savers) and so we are trapped with low interest rates until something else changes.

I am inclined to agree with PDK to an extent that "growth" needs to be fundamentally questioned. The notions of growth in liberal economics, stem back to John Locke as far as I can gather. His theory of growth was based on the idea that people could use the land, known as the "commons", make it private, productive land, create a surplus and get rich without too much State interference (although in his day the State was a profligate monarch so a very different matter entirely). Locke thought there was plenty of land to go round and didn't ever imagine anything like the population and consumption needs of our modern world. Why do we just accept growth as a necessary function of society? Why not equilibrium?

What you are not taking into account is that when mortgages used to be that expensive they used to tend to be shorter too, hence the total interest would be pretty much the same as it is now if not lower since banks would try to compensate for inflation over longer periods.

You really do not understand how interest works and basic mechanisms of the economy. Rates have nothing to do with DTI, it is the total amount borrowed what does. Rates are now lower as a result of expensive house prices. This is how it works: since borrowers need a house where to live, they would not be able to pay it off in 10-15 years as they used to, hence the period needs to be longer, with higher rates the payments would become serviceable so banks need to lower the rates to a point borrowers can still borrow high amounts and be able to pay them in a longer period of time.

If you own an IP with say a $200k mortgage but then buy a owner occupier house with a $700k mortgage does the IP mortgage also count as part of your total DTI? Or is it DTI per loan?

Yes it counts.
Unlike the UK for example, in NZ DTI includes ALL debts one has - student loans, car loans, HP, and even credit card limits and overdraft facilities even if these are not used. So yes, IP is included - both mortgage as debt and rents are included in income.
In the UK they use (from memory) a LTI ratio which relates to the loan only and excludes all other debt including that related to IP.
It is for this reason our DTI ratios tend to be higher than the LTI ratios commonly quoted for the UK.

The UK banks still assess the whole debt a person has when considering lending though. And a home loan is usually capped at x3.5 DTI

So more than half of the money borrowed is 5 or more times the combined household income.

Urgent action is required to mitigate this, obviously banks are getting greedy and people don't really understand what borrowing money means.

And the RBNZ wants to lower rates even more, for gods sake where are these idiots going to bring us all?

There are no even remotely decent houses in Auckland for under 7 times income. No wonder people are borrowing so much

Nobody is pointing them with a pistol, people borrow because don't understand the way economy works and most of the media is misleading them in favour of their shareholders interests.

Still looking at the world through the tear view mirror. Wait until deflation hits.

This is going to be extremely painful for a lot of people.

for those who don't buy as RBNZ pushes their housing ponzi even harder

I'm glad to be in the 'take lower interest rates to pay a proportionally higher % of principal from each mortgage payment' camp and not in the 'ooh low interest rates, let's get a massive new loan'

Mmmmmm. I'm in the camp of needing to either sell and buy (upgrade/sidegrade) OR reduce equity to fix cladding issue.
I wish we could just stick it out and smash out this mortgage (1/3 of mortgage coming up for review in Dec 2020).

Getting debt is a good idea now as the money printer at the reserve bank is going full throttle. Investing in term deposits is really risky at the moment so brick, mortar and land is a much safer investment.

It is good to see the wealth transfer from the savers to the borrowers through the printing of money.