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Two-thirds of Auckland first home buyers in March borrowed at a DTI of over five - and their mortgage sizes averaged in excess of $750,000 each

Two-thirds of Auckland first home buyers in March borrowed at a DTI of over five - and their mortgage sizes averaged in excess of $750,000 each

Debt to income ratios of home buyers are continuing to go through the roof, a crunch of the latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio (DTI) shows.

The RBNZ has already given some flavour of these latest figures in its Financial Stability Report released earlier in the month, which highlighted the very high DTIs of lenders.

The new figures released on Tuesday show the break out for Auckland - and the figures are spectacular. And not in a good way.

Remember also, the March month was a record for total mortgage borrowing throughout the country, with a massive $10.487 billion borrowed. So, we are talking about very big sums of money being borrowed on high debt to income levels.

Auckland first home buyers in March collectively borrowed $815 million.

Of this, $552 million was borrowed on DTIs of over five.

If we look at the number of mortgages involved, it was 734.

So, in other words, those high DTI mortgages for FHBs in Auckland in March were for an average amount of just over $750,000. 

That's not too surprising when you look at Auckland's median price of well in excess of $1 million - but sobering to see in print anyway.

So, the FHBs are geared up, but the owner-occupiers in Auckland weren't actually that far behind.

They borrowed $1.833 billion in March, of which $1.111 billion (60.6%) was at DTIs of above five.

The revelations of these very high levels of high DTI borrowing come as the RBNZ is due (at the end of this month) to report back to Finance Minister Grant Robertson on the potential introduction of a DTI-limiting macro-prudential tool.

Robertson has shown a clear inclination to want DTIs applied against investors - but not first home buyers.

The table below shows the percentage of new mortgage money with debt-to-income ratios of over five times:

Group Mar 21 Dec 20 Mar 20
FHBs nationwide 53.5% 48.8% 40.0%
Auck FHBs 67.7% 64.8% 57.5%
Non-Auck FHBs 41.7% 35.9% 26.4%
Other owner/occ nationwide 45.4% 42.8% 33.7%
Auck other owner/occ  60.6% 57.2% 47.2%
Non-Auck other owner/occ 33.4% 31.5% 24.2%

As can be seen all of the figures have blown out substantially in the three months from December 2020 to March 2021. And they are all way higher than they were at the same time a year ago - which was the last 'normal' month before the Covid disruption. (March 2020 was buoyant - but then we locked down at the end of March. April was the month it all died away.)

As I've said before, figures such as these would suggest that the introduction of DTI limits might be inevitable. The key question will be whether they will apply to FHBs.

They probably should. But the Government would not like that. Decisions, decisions.

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96 Comments

30
up

Close to 70% of Auckland FHBs over 5 times DTI ratios. Over 60% of Owner occupiers over 5 times DTI. Housing crisis rife. Christopher Luxon, wannabe PM owns 7+ residential properties when there is a severe housing shortage. NZ is going to the dogs.

39
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Not sure why, but modern governance and society is reminding me of the hunger games plot. People in the 'Capitol' completely out of touch with average joe who doesn't own a house and is forced into playing some crazy game where its kill or be killed in order to buy a house. Those in the 'Capitol' who own 5 houses already watch on with glee as a 25 year old gets destroyed by a boomer investor with an inferiority complex.

https://youtu.be/J9NZawNEhIA?t=66

22
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It’s actually quite sad eh IO? It’s almost like there are people who enjoy seeing others struggle. Humans are supposed to be social,community based group through inherent traits yet you see these people from the ‘Capitol’ and others who follow them take pleasure in watching others struggle. Almost like ‘haha loser I am so glad I ripped the carpet for under your feet causing you to fall’. There was a silly ‘joke’ in the property investor group today about a FHB needing to get a plumber if you have seen that. The superiority complex is so glaring. There is something quite wrong with these people. A bit sadistic for my liking.

10
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I'm not sure what is worse, the ignorance of those who are 'getting ahead', or the suffering they are causing for those that are as a result 'left behind'.

They tend to be not exactly the types people are banging their doors down to get a date..if u know what I mean

Yet when I have opined that all in society are supposed to benefit, and that socio-economic policies are supposed to achieve this, there are still the few who lambaste me as being "socialist". It is just the the Americans when the slightest smell of "socialism" raises peoples hackles and is viewed as a serious threat. The problem is it isn't socialism, it is centrism. It is just that people tend to be extremists and you cant be in the middle, you must be left or right.

“ Christopher Luxon owns 7 properties “What? Does he keep them empty ?

15
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Who knows what he does with them and I wonder why a government servant who gets paid top dollars from hard working tax payers and not to forget a person who has been creaming it with eye watering 6 figure salary had even more eye watering bonus scheme (as AirNZ CEO) has the need to horde so many properties? This is beyond my brain power to compute if it is not utter, selfish, money hungry greed. I guess us idiot taxpayers are paying the mortgage on his Wellington property. These lot really don’t know what being a public servant is.

https://i.stuff.co.nz/business/property/300310944/property-investors-dom...

Best place to store capital (wealth) right for tax purposes...unless we change the tax laws, then property is going to be used as a tax haven as opposed to a place to call from home for those who don't yet own a house.

Stinks really but he's playing the game and winning....but looking like a (insert anything) in the process.

Anyone with any smarts that wants to get into politics seriously and without moral hazard, would have their wealth put in a blind trust.

In comparison between Luxon and Ardern, I sure know which one I will cart my vote to. Would swing to Greens if there were a little more sane. They are just all over the place.

24
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National have stated they want to:

- Repeal the 'Foreign Buyers Ban'
- Repeal Healthy Home Legislation
- Repeal the latest changes to Tenancy Law
- Repeal Property Tax changes
- Possibly repeal the BLT
- etc

National have no solutions other than 'binning' the RMA, which they failed to do for 9 years. National MP's certainly own a lot of property, so makes sense for them. Saying that, much of the legislation [enacted/amended] under Labour does seem poorly thought-out/crafted. I wouldn't vote Labour, but I sure-as-s**t wouldn't vote National.

National HAVE LEARNT NOTHING.

It will be hard for National to get anyone’s vote if they voters had any morality left.

16
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Luxon is a typical holy roller, full of behaviour contradicting the bible teachings.

Yep, another one. Parliament, and particularly the National Party, is full of them. Younger voters are seeing past this moral majority influence. Its tired and mainly white . Luxon has no chance of leading the Nat's to a victory let alone Collins.

Not sure about that. The Labour Government seem to be doing National a lot of favours towards their next election campaign.

Passer by @6.34 - its called choice, if you wish to restrict that choice do you have a car or clothes in excess of your basic needs, perhaps you should gift these to those less fortunate than yourself!

16
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Thank you so much for your concern. Just for clarification:
1. I don’t own any shelter than the one I live in. Well the bank owns majority of it as I have a 30yr loan with the bank.
2. As for clothing, I don’t own a whole lot and I regularly donate what I don’t use. In fact with children outgrowing their books, cloths, bikes etc. I seek out actual charities that make sure these go to those in need rather than just dump them in clothing bin.
3. I don’t buy more food than my family need and definitely don’t horde food in fridge or freezer.

There human basics, food, clothing and shelter. I don’t have any more than I need.

I own a single car, don’t have a garage full of cars.

Even though I don’t earn an exorbitant amount, I have regular deductions for my bank account to various charities supporting families, children and animals.

It is my choice to not be materialistic and greedy. You have your choice. While it’s my choice to complain about a guy whose income depends on me working hard and paying tax. It’s perhaps your choice to use your hard earned money to go give him donations if you wish.

I think the focus should be not on what some people may have, but the failure of successive governments in creating very complex and expensive systems to allow for cost effective building.

and can you blame him ? its clearly been the best and most sensible personal investment option over the last 20 years -- so why wouldn't he make that choice!

He is also clearly an excellent landlord -- because we know dam well if he was not it would already be smeared all over the media -- Maybe he also predicted that Grant and Jacinda would throw money around like confetti and put prices up 20% in a year and thought he would take advantage of their largesse -- one things for sure - bet he is not geared at a DTI of five!

This. @Passerby would do well to tone down his raving communism. There is a housing crisis. Cheap credit and policy settings have exacerbated it. Can't blame Luxon or anyone else for cashing in. Policy setting should be adjusted to reallocate such investment.

Raving communism ...?
Please explain. I await with anticipation .

At least Luxton will now have to pay tax on those 7 houses. Making property investors pay tax is the only sensible thing this Government has done to date.

Passer by @3.50 - Unless they are empty they do the same job of providing shelter irrespective of occupation by renters or owners, so your complaint seems to be about people owning more than a single property.

Cost wise to renters; it's like buying your groceries from the dairy.

Good to see the tall poppy syndrome is alive and well in NZ. The number of people that own 7+ rentals are a very small % of the population and are not the problem. As long as they are not leaving them empty I don't have an issue with successful people. What would the difference be if those 7 houses were owned by 7 mum and dad investors? Would you hate them too?

Yes

(ps it’s a bit sad if your definition of success is the ownership of 7 houses - in a healthy society, the ownership of one ‘home’ is success. Ownership of 7 while poor people are being pushed into emergency accommodation is just self interest greed and ignorance, not success).

You are correct...owning one house is a success and most people would want to see that be an option for the average Kiwi. Where you lose me is your equating a "financially" successful person who chooses to put their money 7 rental properties is causing our current problem. There is a housing crisis (shortage of houses) so whether they are owned by 1 person renting them to 7 families or 7 different families owning each property each...how this adds or detracts from the crisis?

I don't necessarily agree that we have a housing shortage in NZ - I think we have a housing affordability issue in NZ.

If you can't see the difference between the two then any further discussion with you on the topic is a wasted effort on my behalf.

And if you say that its a 'supply' issue, and that adding supply will fix the problem - what happens if investors buy the majority of those new houses! That doesn't solve the problem at all - it just means more competition between FHB's and landlords, which drives prices even higher making the problem even worse!

Answer is very simple...you keep making it harder for people to own multiple homes LVR's income to debt ratios etc and make it easier for FHB's by perhaps higher grants...increasing mortgage length...low or no deposits etc etc. If that is Labour's goal I'm sure they will find a way?

The imbalance of the system is that it becomes much easier to buy a house the more you already own. Owning 7 rental properties isn't really that much of a sign of real success as it is a sign of systematic greed and willingness to profit out of other peoples misery. There is an assumption that every person renting either wants to rent or cannot afford to buy which is of course rubbish. Even if there was a home for each household in NZ (which I am sure there is) as long as landlords are buying multiple houses then other households/families cannot. They are forced to pay rent which could be used as deposits and are forced to compete with other families for whatever houses do become available and therefore drive up the prices of those houses. Then add to that the houses that are unoccupied that squeeze out poorer renters that cannot compete with more well off renters (who should be owners) and they therefore become homeless.

Kiwiwayne is possibly a housing investor so may not be able to see past personal biases.

He/she may not be also, and if that is the case, might be able to see the reasoning in your argument.

I have two big mortgages on my home plus another house my parents rent from me. I am one of the mum and dad investors caught by Labours rule changes over the last few years. Trying to do the right thing for my retirement is costing me quite a lot weekly however like many of my generation we are happy to sacrifice now to secure a brighter secure future.

17
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This should not really be of any surprise. Someone on this website even suggested that nobody should be paying off principal debt anyway. People should only be obligated to service the debt.

This is why the monetary value of NZD is being destroyed without anyone in power even paying lip service to the reality. The general population are oblivious to it anyway. Truly dreadful situation.

22
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It’s amazing how comfortable some people are having high debt. This isn’t going to end well for some.

32
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So far, for many, many years it hasn't been going well for those with no debt

We'll just keep dropping rates further eh Yvil so that nothing changes in the future! Can imagine the OCR in 2030 going from 0.02 to 0.01 and you'll say 'see, house prices can go up by another 50% because the OCR just halved again'!

Yes but you got the figures wrong, if the OCR halves, you can take out a mortgage twice the size at the same servicing cost. So houses can double in value again. And again and again...

On an IO basis. Hence the calls to limit IO. If you have to make P+I repayments the former begins to dominate.

10
up

Excellent - average house price across NZ will be $10 million before we know it and average wage static at $70K!

That is their choice and they will deal the consequences, as it should be for those who choose to be permanent beneficiaries of those in productive work and whilst our society has tolerated the situation it may not continue and current attitudes of the productive sector is getting more annoyed at the attitudes to and constant pillorying of their values. Should/when those values change there will wholly predictable but unexpected consequences and it will be ugly.

Look mate, you just have to do it right. My son was working on a rental yesterday (builder), this rental is owned by a guy who owns a labour hire business, 3 berdroom home. They have been replacing the curtains between single beds in the living areas with partitions, and insulating the place. This guy could only get 10 Philippino's in there, but now will get 12. So has increased his take from 2000 a week to 2400 = winning at life.

11
up

I'm actually surprised that "only" 2/3 of auckland fhb are dti>5. Serviceability, per current tests, would be something like DTI 6-7 for most of them?

All a consequence of low interest rates and little fear of them rising.

Plenty of FHB would be over a DTI of 7. If the average borrowed is 750K then that's huge. Basically that's THREE times the mortgage that I needed in 2005. Sure interest rates have dropped but do the math, your still way better off at $250K at 8.6% interest than 750K at 2.9% interest .Its now so bad your still better off on that $250K at 18% than you are on $750K at 0% interest for a 15 year term paid weekly.

Thanks for explaining the math behind the declining housing affordability. Unfortunately the boomers won't ever get this and will always say that the current lot are just not prepared to put in the hard yards needed to own a home like they did back when they were young.

12
up

DTI's go through the roof because interest rates go through the floor as a result repayments stay about the same.

Exactly right I would have thought this was pretty obvious.

DTI's go through the roof because interest rates go through the floor as a result repayments stay about the same.

You make it all sound so simple. This is what the BoJ thought and they were kind of right. Lower debt servicing costs means debt repayments didn't change when trying to maintain the bubble. Problem is that they didn't account for the economic impacts on income, particularly at the individual and h'hold level and the reality was that more labour hours were necessary to repay the debt. Stay-at-home mums were eager to get into the workforce. Imagine that in NZ where two incomes are already necessary for most to pay for shelter. Get the kids out at the intersection washing windscreens.

"You make it all sound so simple"

Thank you

It seems we've found the secret to wealth and prosperity for all! Why couldn't central banks figure this out at any other point in history?! Just keep dropping interest rates and you never need to worry about debt levels (easy..)

They only reason they can get away with it now is low inflation. Low inflation is being caused by globalisation and technology, so really these things are why we have such high house prices.

Of course, the twist in the tail is that interest rates don't stay at effectively zero for the duration of the mortgage.

You might "own" a house. But the bankers own you.

14
up

But a $1m mortgage at 2.5% is NOT the same as a $500k mortgage at 5%.

Because with the former, you still have an extra $500k principal to pay off.

Why stop there?

A $500k mortgage @ 5% is NOT the same as a $250k mortgage @ 10%.

Because with the former, you still have an extra $250k principal to pay off.

Davo, Davo, Davo, yes you owe $500k more but you also own a property worth $500k more. Accounting 101, it's all the same

12
up

Unless it's not actually worth $500k more because no one else is stupid enough to pay that price for it.

The market is just stupid, the FHB DEPOSIT is now higher than my entire mortgage used to be and it gets worse, that house I bought and was paying $630 a week mortgage on came up for rent last week at $830 a week.

Not entirely true. The problem as illustrated above is if you factor in what house prices were only a few years ago. The mortgage term is drifting out to infinity. Lowering rates cannot compensate for the house price gains, thats the bottom line. Even if interest rates were now zero, your still way worse off than I was back in 2005 buying a house. Rates would need to go negative to offset what you borrowed from the bank and that is never going to happen. Even if it could happen can you imaging the carnage in the market if the bank started paying you to buy a house ?

How else are FHB's supposed to feed the ponzi monster?

11
up

How else are FHB's supposed to feed the ponzi monster?

The marginal buyer is crucial in any bubble or ponzi.

If DTI's are introduced they of course have to apply to all, not just investors. It makes no sense at all protecting only investors form high borrowing but not protecting FHB's

But they need FHB's to feed their cash deposits to the ponzi. If they hit FHB's with DTI's then they are essentially removed from the game and the only real money generated by productivity and labour that feeds this monster goes with them.

So ?

That's not necessarily true. DTI's can be used to quell demand, not just protect buyers.

What DTI could they realistically introduce that wouldn't destroy the market? It certaintly couldn't be the same figure for o/o and investors. Knowing RBNZ/Govt it'd be ridiculously high resulting in 0 impact.

Depends on your definition of 'destroy the market', I guess. A market where house prices were back around 4x median income would be fixed by my definition; I would define a market where house prices are 11x - 12x median incomes as 'destroyed'.

Well of course FHB's borrowed 5 times DTI ratio..... how else would they be able to buy a 2 bedroom + 1 bathroom shared lot in the urban streets of Auckland?

True. Either way FHB is screwed by the political class supported by Mr Orr.

Is he really sick ????

I think he's a decent guy, but he's being forced to operate in a system that is full of moral hazard. When enough people wake up to how badly screwed they're either being now, or are about to be in the future, then it wouldn't surprise me to see some type of revolution occur. At the moment the system is benefiting some people excessively, and others not at all. That is bad for social (and financial) stability long term.

A decent guy would not have said it is a "FIRST CLASS PROBLEM"

Well it will be a first class problem - because it will be the first class who will be taxed into oblivion to pay the bill for the financial and social mess it will create. So guess he was right!

Either way FHB is screwed by the political class supported by Mr Orr

Technically you're correct when you make the distinction between the political class and central bankers (in the Anglosphere anyway). In reality, I think they're tied at the hip by ideology and the implicit power structures.

"Two-thirds of Auckland first home buyers in March borrowed at a DTI of over five - and their mortgage sizes averaged in excess of $750,000 each"

Why is this a headline.

If the median is 1.3 million than am sure many will be much higher that six or seven time DTI. Why is experts, government, RBNZ or anyone surprised as if are not aware. Bullshit.

Mr Orr and Jacinda Arden should........

Stll Mr Orr will wait and watch.

As far as FHB are concerned both Robertson and Orr has screwed them - They buy and are F#@$ by high mortage /DTI and if they do not buy are f@#$# so FHB is screwed anyway by Robertson and Orr - even if both the almighty listen to their inner soul and act still it is all over for average Kiwi.

Even with high DTIs they still needed incomes well in excess of the household average.

Why isnt the RBNZ getting blamed for this happening because lets face it if they didnt lower the OCR print heaps and do a fancy word thing called QE then asset prices would not have sky rocketed as they have done. But instead they follow the rest of the world and now they will blame property investors who took advantage of their Fked up system. Wait till hyper inflation hits then that will be something to talk about.

11
up

It was removing LVR's in such a fast, reactionary way that was completely %@@#% bonkers.

Lots of people don't understand the RBNZ operates very separately from the government and what has happened in the last year has been all about the RBNZ and not the government. The RBNZ have actually been very transparent that they have wanted to support the property market. Still, lots of people hear this as the words from the government and blame the government on high prices, but it hasn't been them.

The RBNZ following the rest of the world is done largely to keep out currency from appreciating, so we don't really have an independent monetary policy anymore.

You see people saying here DTI & IO will be restricted by RBNZ/Govt...but on the contrary I see DTI being increased and IO encouraged. How else can P&I loans be sustained at this level of DTI. Especially thinking around 'life milestones ', e.g. FHBs who want to have children etc...

Young people are simply cannon fodder in the 2020's Nifty! Who cares about them when its all about making sure that assets don't fall in price so the boomers can cruise around the country in their brand new campervan while receiving rental income and superannuation.

No ones business except the borrowers and the lenders.

Is it just like : No ones business except the drug addict and drug supplier.

Numbers make sense to me. In the past 5 years the Average Income between the two partners buying a 1st Home in my patch is at least $200k, and thus only $40k payments per year between the two of them for a 30 yr Mortgage with P&I payments is easy peasy. Best of all they can now fix it for 5 years. The pity is the Government has no plan to allow the Average $120k to $130k family to get on the property ladder and into a Single Family Home in Auckland. Subsidizing Mortgage Insurance to protect the Banks and allow the working families in with a 5% Insured Mortgage would be the wise way to keep Auckland working class families from jumping ship to OZ where they can at least own a Home. Instead it is only the privileged professional class of Auckland's 30 somethings that get to buy a house. This is a crisis 5 years in the making and anything the Government can do to wedge single family houses away from Investors and into Owner Occupiers is good social policy in my book. But instead policy still pushes people like Luxon to own 7 houses because its the no brainer safe investment--better than owning Government Bonds for your portfolio.

Yup, property is being used as a tax haven for the rich in this country instead of a place for the average person to call home. As a result, rich own multiple homes and lower socioeconomic portion of society live in motels (paid for by those who actually pay income taxes).

It is going to be tuff once interest rates go up as soon as US put up rates to stop the USD from going into oblivion NZ will be screwed and anyone with cash will buy houses for 20% of what it’s worth now. Bankruptcy will be going off all over the place. Banks would rather have 20% than nothing.

DTRH - you need to lighten up. A lot of people on here are saying that interest rates can never rise because, well people have too much debt against the housing market. That an the RBNZ will simply just continue to drop rates meaning that if the OCR goes from 0.1 to 0.05, that is a halving of interest rate costs, meaning that houses can double in price again. Sound ok? (sarc)

I think we both know what is coming. I worked at large bank in uk in the 1980,s 1990 ,s my interest rate were low as worked for bank but at one point interest rate went up to 10 to 15 % . My mates were just dropping keys off to the bank as just could not pay mortgage,took the market 10 to 12 years to recover some people just gave up family’s broken would not like this to happen to droves of people over here

No one, and I emphasise 'no one', knows what the story will be in 2 years. We could have a short inflationary burst only for it to be cut short by a financial crisis. In which case the OCR could well be negative within the next couple of years.
Or we might not, and we might see a few little steps up in the OCR.

Why are people like Buffett sitting on cash ? Because as soon as crash happens people like him will buy assets for next to nothing you say no one knows I think you don’t know take a look around at what is going on house mouse

People will not be selling up they will be negotiating with their banks. Where do you think they are all going to live ? It will never be allowed to happen to any great degree that jeopardises society as a whole.

Anyone who cares about this country, it's present and future, should be very concerned by this.

I was concerned 5 years ago because there was still the possibility of doing something meaningful about it then - but unfortunately we’ve made our bed now so I think it’s time to sleep in it.

For every "mom and pop" investor there is a young family without a home and someone else's mom or pop working into their 70s unable to retire due to the cost of living. Saddling desperate people with this kind of debt level in order to fill the pockets of real estate agents and speculators is immoral. We will end up with the wealthy having to live in gated communities to protect themselves from the broken society that they have created.

Just like house price to median income multiple, DTI's tell us about the underlying health of our policies. If a median multiple is above 3x income, it tells us there is some sort of dysfunctionality in the system.

The solution to stopping the median multiple from increasing is NOT to put a ban on for example banks lending outside these limits but to change the first principle policies that would cause the rise in the multiple to begin with.

After all, to ban a further increase on the DTI now is well past when the damage of these high ratios has already occurred, and any further increase is less likely. And still would not address the underlying reason why this happened in the first place.

The root cause of this problem is the way in which money is created. The commercial banks create money when a loan is taken out and destroy money when that loan is paid off. I find it amazing that we allowed such an insane system to exist.

One thing that stands out from a lot the comments, is that owning property is a legitimate job that involves loads of work. You just don't sit back and watch the money roll in, that is total B.S.
There are many pieces to property ownership and suppling healthy homes to tenants.
The government has unfairly villainised property owners to cover up there own ineptitude.
Knowing the full story is important as opposed to shooting from the hip as labour do.

Is it possible to put (sarc) after each sentence so its possible to tell which bits of this argument are for real and which parts are for a laugh...

Hard to tell at first look :-)

5 x DTI at these interest rates? What could do wrong?...well, the record shows that people were warned endlessly, whether they are MPs or not, that the markets don't care what you think, they will eventually punish you for irrational exhuberance.