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Govt signs off on DTI measures, which will be implemented; RBNZ also to tighten LVR rules from October; RBNZ says it 'hasn't seen sufficient reduction in risky lending'

Govt signs off on DTI measures, which will be implemented; RBNZ also to tighten LVR rules from October; RBNZ says it 'hasn't seen sufficient reduction in risky lending'

The Reserve Bank is again taking aim against a still rampant housing market - and has now been given its much wanted debt-to-income measure by the Government.

Additionally it is going to move to tighten up the existing loan to value ratio (LVR) rules, by limiting further the amount of high LVR lending the banks may do.

From October the central bank is planning to reduce the amount of lending banks can do at LVRs of over 80% to just 10% of their new lending, from 20% now. This is for owner-occupiers.

The 10% limit is in line with what the RBNZ originally implemented when first introducing LVRs in 2013. 

This move appears to reflect the fact that while the reimposition from May 1 this year of 40% deposit limits for housing investors has seen investors back off - owner-occupiers have been more than happy to fill the gap and the housing market has kept roaring.

Introduction of a debt-to-income measure will take longer - with the RBNZ to start consulting on it from October. 

Finance Minister Grant Robertson was a big sticking point for the RBNZ getting proposals for a DTI measure over the line - because he didn't want them to apply to first home buyers.

A compromise has been reached, with the renewed memorandum of understanding (MoU) between the Minister and RBNZ including the phrase that "the Reserve Bank will need to have regard to avoiding negative impacts, as much as possible, on first home buyers..."

The RBNZ has indicated that it may first begin the process of moving towards DTIs by initially implementing an 'interest rate floor', which apparently could be implemented quite quickly.


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Essentially that would be a formalisation of the process by which banks run mortgage applicants through 'test' interest rate levels at higher levels than prevailing rates to ensure they can handle increased payments. The interest rate floor idea would see the RBNZ setting a standard 'floor' rate for the banks to do those tests with.

The updated MoU between the Minister and RBNZ includes these possibilities for a debt servicing measure:

  • Debt-to-income ratio restrictions – cap on mortgage debt (or total debt of a borrower including mortgage debt) as a multiple of income;
  • Debt-servicing-to-income ratio restrictions – cap on the percentage of a borrower’s income that can be allocated to servicing debt payments;
  • Interest rate floors – floor on test interest rates used by banks in their serviceability assessments.

RBNZ Deputy Governor and head of financial stability Geoff Bascand said on Tuesday the central bank was focussed on ensuring borrowers are resilient to a range of future economic and financial conditions.

"We are particularly concerned about those who have borrowed in the past 12 months at high LVRs and high DTIs.

“If house prices were to fall, some buyers could face the possibility of negative equity – which means the value of their property is below the outstanding balance on their mortgage.

“We’ve already made adjustments to Loan-to-Value Ratio (LVR) restrictions to partially manage this risk, but we haven’t seen a sufficient reduction in risky lending.”

This is the release from the RBNZ:

The Reserve Bank of New Zealand – Te Pūtea Matua – will soon begin consulting on ways to tighten mortgage lending standards, Deputy Governor and General Manager for Financial Stability Geoff Bascand says.

The action follows the signing of an updated Memorandum of Understanding (MoU) on macro-prudential policy with the Minister of Finance.

“The updated MoU adds debt serviceability restrictions to the list of tools available which will enable us to be more targeted in our approach to tackling financial stability risks,” Mr Bascand says.

“We are focussed on ensuring borrowers are resilient to a range of future economic and financial conditions. We are particularly concerned about those who have borrowed in the past 12 months at high LVRs and high DTIs.

“If house prices were to fall, some buyers could face the possibility of negative equity – which means the value of their property is below the outstanding balance on their mortgage,” Mr Bascand says.

“We’ve already made adjustments to Loan-to-Value Ratio (LVR) restrictions to partially manage this risk, but we haven’t seen a sufficient reduction in risky lending.”

In order to prevent this problem from getting worse, we will be consulting on a proposal to further reduce the amount of high LVR lending to owner-occupiers. We propose to restrict the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans, down from 20 percent at present. We will begin consulting on this change later this month with a view to introducing it from 1 October 2021.

“We also intend to consult in October on implementing Debt-to-Income (DTI) restrictions and/or interest rate floors in an effort to provide further comfort that borrowing is sustainable. Introducing DTIs will take longer, whereas the banking industry has informed us that interest rate floors could be implemented more quickly.

“Consultation will be focused on operational feasibility and possible calibration of these tools, including their impacts on investors and first home buyers,” Mr Bascand says.

And this is the release from the Minister of Finance:

Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr have updated the Memorandum of Understanding (MoU) on macro-prudential policy to further protect the financial system and support the Government’s housing objectives.

“This change will ensure that the Reserve Bank has the flexibility to respond to emerging financial stability risks and deploy appropriate tools as required,” Grant Robertson said.

 “I have largely agreed to the Treasury and Reserve Bank’s proposed update to the MOU to add debt serviceability tools, but as I indicated in June this extension should not unduly impact first home buyers. As such, we have agreed further wording in the MOU that states:

“In the design and implementation of a debt serviceability restriction, the Reserve Bank will need to have regard to avoiding negative impacts, as much as possible, on first home buyers, to the extent consistent with the Bank’s purposes and functions under Part 5 of the Act.”

“I believe this agreed wording will set clear public expectations while maintaining the operational independence of the Reserve Bank. It is still up to the Reserve Bank how it chooses to introduce any restrictions, having had regard to this condition.”

The Reserve Bank has announced its intent to consult on ways to tighten lending standards, citing concern about unsustainable house prices and the risks to financial stability.

It has proposed reducing the amount of lending banks can do above a high Loan-to-Value Ratio (LVR) of 80 percent, from 20 percent to 10 percent of all new loans. Consultation will start with banks later this month, with a view to introduce this from 1 October, 2021.

The Bank also intends to start consultations in October on implementing Debt to Income (DTI) restrictions and/or interest rate floors.

“It’s sensible for the Reserve Bank to consult on lending rules designed to ensure the stability and soundness of the financial system. Under changes introduced earlier this year, the Reserve Bank also has to have regard for the Government’s housing policy to support more sustainable prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers.

“It is important to note that any decision to introduce DTIs would only happen after a full public consultation and Regulatory Impact Assessment, which would take a minimum of three months.

“The Government has already put in place a number of measures to cool the housing market to make house prices more sustainable and tilt the balance in favour of first home buyers, including extending the bright-line test and removal of interest deductibility.

“Theses initiatives will make a real difference. However, there is no silver bullet to housing affordability and monetary and fiscal policy need to work together to achieve a sustainable housing market,” Grant Robertson said.

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166 Comments

So the RBNZ and government have finally turned up at the bottom of the cliff with the ambulance ..... but its about 6 months after the patient died. Bravo.

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Hey! Wake up ! The stable doors are a swinging. Anybody seen the horse?

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"Blinkers" are essential for those who need see the way ahead. They come free with every Public Servants and Politicians Annual Pay Rise. They are paid for by what is know as Tax Payers. These have been "Groomed" to see which way the horse has bolted. Now some are "Saddled for life" and others get a "free reign"

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The horse won't be in parliament today as she has the sniffles. Running away me thinks.

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More likely planning a wedding to help boost her polling.

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After a pick me up from Gayford.

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Ah, as a parent though with a child in daycare, I can totally relate to it. Prime Minister or not they are humans and can get sick too? Not making an excuse for her but the criticism doesn’t seem fair.

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Bingo!

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Think it more about being Judith Collins fans , these housing problems are hitting a lot of countries , fueled by low interest rates and central banks fearing any rises will stunt growth , maybe they should suck it an see .

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I agree. Half the people commenting seem to think this is the government's issue alone as if individuals were not involved in signing up for a mortgage they couldn't afford. They will be the first to cry "Why didn't the government prevent me from doing this?" as they ride that proverbial horse out of the barn.

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Criticizing a politician's looks (as opposed to what they say or do) is a cheap shot.

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How so? An old proverb, shutting the stable door after the horse has bolted simply illustrates the latter, being property prices. A quantum leap attaching that to any particular identity surely could only be forthcoming from an over sensitive reaction bordering on precious, methinks.

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I wasn't referring to your comment, because as you say, you were simply referencing a proverb. I was referring to the comment below: "The horse won't be in parliament today as she has the sniffles. Running away me thinks".

Doesn't take a 'quantum leap' to notice that that commenter is referring to a person. We're all adults here I assume. It's not 'precious' or 'over-sensitive' to expect adults to engage in a discussion without resorting to childish personal insults.

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I agree wholeheartedly. I have been commenting here for a while and I have been a strong critic of this government while being their voter for the last 3 election cycles. Majority of the criticism is valid as we the people need to hold the government we elected to serve us accountable. I feel very saddened and disappointed when comments target looks, weight, talks about certain members and how they are interested in filling their bellies etc. Name calling gets me too. Even though I agree with the essence of a comment, calling Jacinda Cindy just leaves a sour taste. Absolutely hold the government to account on their actions and performance and not on their appearance.

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How virtuous of you

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Nothing virtuous, it’s just being decent.

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The tardiness of the RBNZ in tightening conditions is eye-watering. An absolute disgrace.
The RBNZ must implement such restrictions right now, not wait until October, and they must start raising rates significantly starting from this month, and with the same urgency with which it unnecessarily and recklessly lowered the rates last year.
Unfortunately, and until house prices start declining significantly, there will be a period during which such tightening will affect FHB's too. But this is necessary and unavoidable.

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What is the percentage of lending currently above an LVR of 80 percent to owner occupiers (not FHB ). ?

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Currently 300 - 400 borrowers per month. Peaked at 600 - 700 per month April to November 2020. Average 586 per month since 2014.

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The RBNZ is nothing short of negligent, printing so much money, and retaining interest rates at almost zero for so long, with rampant house price increases.

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Careful what you wish for.

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If the triple whammy of higher interest rates, DTI and LVR restrictions do not tame the Housing Inflation, then there is no hope. The only thing is , the Government is dragging its feet. All the measures should be announced at one go, now, when the Government is not facing any Election.

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I'm sorry, we're busy futzing with the country's water ownership right now, please leave a message and we will return your call some time just before September 2023.

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Or they could just announce that they're not wedded to sustained moderation in house price rises. Bingo.

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I think another factor that could impact house prices going forward is needing to meet emissions/eco/ healthy homes standards that will very likely be seriously higher than current standards. NZ houses let in too much cold air and let out too much warm air. New construction methods have been developed around the world that enable passive housing to be built relatively cost effectively but we need to drastically change the way we build. The so called future building going on here is just pis*ing in the wind. We are installing double glazing that is the equivalent to 1970’s and sticking a bit of insulation in the walls and a heat pump. Passive house building and renovation standards are the probable way forward. After all who wouldn’t want to reduce their annual heating costs by 75% to 90%?

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Agree passive is a great way forward. But you are talking extra cost.

Passive requires north facing flat or gentle sloping land. Not much of that around that is able to be developed.

Also have you seen how cheap we are building houses these days? The cost is high but the quality of materials is low. Passive needs thermal mass which is expensive.

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Trying to solve an exiting problem only creates another

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Trying to solve an exiting problem only creates another

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6 months.. More like 6 years too late.

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Yip I think we had a real chance around 2013-2015 to do something meaningful - but not anymore - the size of the bubble is too large now to be contained (in my view). The debt is going to be a drag on the economy for decades to come with producitivty that isn't improving - means falling living standards across the board.

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I agree. We've brought too much of the future into the present, so the future will be a drag in comparison.

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This has been my experience after coming back from an extended period overseas.

In comparison to other developed countries the living standards here are quite low and seem to be going backwards. I would struggle to classify New Zealand as a first world country anymore.

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Well you clearly haven't been to many third world countries then

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Indeed the problems have been there for many years , not just something that has happened in a few years .

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Who's going to take a loss on a property unless they're financially in a corner.

Prices won't fall and if the market drops supply will just tighten up.

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A good question to ask sellers in the many occasions in many countries that prices have fallen. Including in NZ not that long ago, like the 10% drop in 2008-9.

The idea that house prices can't fall is simply, demonstrably, false.

https://www.interest.co.nz/charts/real-estate/qv-house-price-index

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DTI of 10+ here we come & restrict >80% borrowing to match what banks are already self imposing. Nice PR headlines but as usual devil in the detail...or lack of it.

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Agree, what an absolute cop out. This is so disappointing. DTI might have merit depending on the settings they set. Currently with 8 or even 9 times DTI I won’t be able to buy a decent home my suburb. I personally think it should be set to 7.

Still don’t understand after all this why IO loans won’t be banned? Why should someone be able to buy a home when they cannot pay any principal?

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Because the Ponzi must continue.

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Borrowers can pay the principal, they just don't want to. I have IO loans on my renters but I also have a mortgage over my own house. In the past you delayed paying principal on the rentals as you got a deduction for interest charged on loan (those days are coming to an end), instead you smashed your home loan.

IO is no big deal and banks stress test based on interest and principal.

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If IO is no big deal, then let’s do it.

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Why?

Bank has no concerns. LVR of 10% and DTI of 2, in fact they want me to borrow more money.

I am happy to use my money to smash the mortgage on my own home and go on holidays around NZ rather than pay the principal on my renters.

If the bank and I are happy and there's no risk to economy, what business is it to you?

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Ahh you are missing the point - blanket restrictions ala covid - are the answer. Your personal situation is of little concern to anyone.

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OP contends IO borrowers cannot pay their debts. Clearly wrong as my example points out and also given banks stress test interest and principal (i.e. borrower could pay principal if they wanted to). So blanket restriction on IO loans not necessary to ensure borrowers do not overextend (OP's contention). LVR and DTIs better tools to ensure borrower is not overextended.

What question are you trying to answer that requires a ban on all IO loans?

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"Clearly wrong as my example points out ......"

Anecdotal.

I think the better question as is, "Are you the exception or the rule wrt IO loans?"

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You're the one claiming there is an IO concern regarding overextended borrowers. No evidence provided, just an unsubstantiated assertion. My anecdote trumps your unsubstantiated claim.

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“ banks stress test based on interest and principal.”

This is an oft-missed point with the anti-IO brigade.

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Equivalent of renting IO

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Nifty1 as you write, in June "new" lending to existing home owners above an LVR of 80 percent was 0.188 billion /5.365 billion, or about 3 percent. Maybe I have missed something.

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Too little to late

In saying that the DTI is the best tool to use, but now it will have to be introduced at such a high level it will initially prove impotent

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Indeed. And then they can say we tried but it doesn't work. All while pretending to actually be taking action.

Watch out for the Stuff comments, the landlords will be threatening to increase rents any second now.

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I think FHBs who are marginal on their deposits will either need to take action immediately to go unconditional or risk having their pre-approvals invalidated by their issuing banks- dreams will be dashed on hesitancy.

Moving forward it will be a game to see who has the most cash- glad vendors aren't accepting Bitcoins.

Be quick!

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Pre approvals are valid for 3 months, and if building they are not going to change that. Its New lending, don't try scare people with stupid comments

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Looks like you don't know pre-approvals are reassessed prior to disbursement and all loans yet to be disbursed will be considered new when the new LVR kicks in.

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Wrong as for this proposal it is based on pre approval dates set prior to any new introduction on lending. But you go on ya scare tactics.

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technically he's not wrong but it is extremely rare for a bank to cancel the pre-approval for a loan and they certainly wouldn't do it becasue the RBNZ sets new LVR's - normally the RBNZ either gives 3 months notice on LVR changes (so the person who got their pre-approval yesterday doesn't have to comply) or will state that the LVR is effective immediately on all new loan pre-approvals.

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.... and yet no bank has ever done that - because it looks ugly when the front page headline on the Herald is - FHB loses their 100K deposit because the bank withdraws pre-approval at loan settlement.

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Actually there is, I witnessed one last October. But that was his fault for dodgy paperwork. He didn't go to the press though.

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My comment was not about banks never redoing "preapprovals" (there are of course rare circumstances where a pre-approval would need to be cancelled at settlement including, if the house is defective, is uninsurable, the applicant has lost their income or fraud).

My comment was in relation to your comment that a bank would redo preapprovals at settlement because of LVR changes - no bank would ever redo preapprovals at settlement because the LVR's have changed.

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Sure I get you. What I was originally trying to say is when pre approval expires and a new one is needed post LVR adjustments, the probability of getting the same amount is reduced and with prices coming into summer, that will effectively knock FHBs off their initial buying plans.

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“ Pre approvals are valid for 3 months”
But the bank can decide to pull out and decline purchase for all good reasons.

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Prices will go up again within the next 3 months.

This will detonate buyer pre approvals for some.

Nail, coffin, fhb, Labour.

Air NZ going to do really well out of this debacle.

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Unlikely to affect FHBs too strongly, if the DTI is at ~7. A household income of 100k would still get you a 700k mortgage which already seems uncomfortably large.

Devastating for the property investor wanting to buy a second or third property. That 700k mortgage doesn't get you too many properties.

Even if you include the potential rental income, a generous 5% yield on a million dollar property only gets you a $350k mortgage, a effective 35% LVR. Less if the rules properly account for expenses, maintenance, insurance etc.

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That's where lower end investors starts to eye specifically on the same lower tier houses that FHBs also wants to buy. Good for competition.

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I'm not sure what you mean.

That $700k for the investor isn't per property, it's for the whole portfolio. Maybe marginally growing with each property if rent is allowed as an income. Want more than 1-2 investment properties and the debt allowed from your salary gets spread awfully thin.

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When you constrain what an investor originally wants to buy and he still wants to buy something, he will look for something at a lower price bracket where he can afford. It's going to be a crowded place where FHDs meet old timers where in the past they don't need to.

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Sure, some will. And then they have to sit back for 5-10 years to build up enough deposit for the next property.

Compare with the current situation, where a year or two waiting gives you plenty of equity to lever up into another property. And another, and another...

You are feigning compassion for FHBs, but really it's investors who are targeted by these proposals. Anything that helps bring prices down will help FHBs and hurt those owning multiple properties.

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What makes you think prices will come down in any meaningful way?

In my opinion if they can't buy this season, they won't be able to buy thereafter either- that's unless they suddenly come across a pile of money or have a huge income increments.

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What DTI ratio do you think is coming? According to the June RBNZ data the average FHB loan was for about $550k. With a DTI of 7 this is still allowable for anyone with household income > $80k. A mortgage of this size over 25 years at 2.3% interest would take up 50% of the buyers after-tax income (assuming one earner with 3% kiwisaver, a little lower if two).

I do not think the DTI is going to touch the sides as far as FHBs are concerned - affordability hits the loan size before DTI for most of them. The opposite is true for investors with multiple properties.

Curious to understand how you see it differently?

edit: forgot to link https://www.rbnz.govt.nz/statistics/c31 download the spreadsheet for total borrower numbers. Column C divided by column U.

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Sadly your finally correct CWBW, this is going to create yet another FOMO event. If the DTI is going to have any effect its going to have to be some unrealistically low figure which will cut FHB out of the market, its that simple.

Be quick !

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Too little and far far too late.

The silver bullet you are looking for is DTI applied to all borrowers without exception and a ban on interest only loans and on using "equity" as a deposit for additional purchases.

Robertson does not want to make housing affordable. He just wants to be seen to be "doing something" to slow down price increases. But never ever for them to come down. More virtue signalling and chins stroking.

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“ He just wants to be seen to be "doing something" to slow down price increases.”

Correct. Most have been applying DTI informally in the background for months. It hasn’t slowed down anything. However, the singling out of Robertson is unfair. The “just look like you’re doing something” is characteristic of this entire Government, from the top down. Whether it’s housing, poverty, infrastructure or anything else you can think of, looking/sounding good trumps actually doing anything.

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Fantastic news, I look forward to the DTI being introduced. Good news for FHBs as it'll slow down the investors competing for the same houses.

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Stop being silly. Investors don't need income to buy houses. They've made so much from flipping properties, that they can straight cash buy houses with cash from properties.

FHB's are hit again with this DTI tool as it not confirms that prices will not drop any further and it will make it even harder for FHB to afford the expensive housing in NZ. It actually forces FHB to only be able to afford to buy property in rural parts of NZ which they probably don't want to live because it's too far away from where they work.

I feel sorry for those who do not own a property. This will now set them back even more.

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Every cash pile has it's limits...

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The point is they don't currently need income to buy houses - the DTI income changes this picture completely. No longer possible to remortgage the other properties to fund a new one. No longer possible to have a portfolio of houses with LVR more than 30-40% unless you have a very high paying job.

If this is done right, the whole tactic of quickly building a property portfolio by rolling up equity into a new purchase every year will be destroyed. If it is done right, property prices will fall to a realistic level and society will benefit.

Full disclosure - I own my own house at a comfortable DTI/LVR. Happy to see the price fall by 30-40%.

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Absolutely correct. People seem to be (weirdly) forgetting that if, for example, we removed a large number of FHBs from the market, those remaining wouldn't be competing for a property at the same prices we're seeing today. It would naturally push prices down until a new threshold off affordability based on DTIs was found.

The same thing applies to property taxes - people always calculate what their payments would be based on current valuations, when the point is that such an endeavor would obviously push prices down!

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This level of thinking causes excessive cognitive dissonance for most NZ'ers! (because house prices only go up...)

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Yes, this is true. If rules make houses unaffordable, prices will fall until they are affordable again. It's clear to me the rules are being setup to remove investors from the market and leave FHBs more or less untouched, hopefully that release in pressure is enough to stop prices rising any higher. In turn, this will discourage future investors who will look to other, more socially useful, asset classes. There's a virtuous circle in sight here, with cheaper cost of living as house prices steadily fall and higher productivity as investment money flows to businesses.

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Your argument seem strong until you forgotten money is never lost in the market- it has to go somewhere. Instead of competing on prices in acquring a house, your theoretical FHBs will then compete on rental accommodation. That in itself is good for house prices.

It's really not that hard to make money in this country.

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Houses are overpriced easily by 30 to 40% by any common sense metric you use, so I agree.

BUT I don't think that is the plan the RB is expecting by implementing the DTI.

It would be nice to know what expect they think it will have on prices, other than “Consultation will be focused on operational feasibility and possible calibration of these tools, including their impacts on investors and first home buyers,”

and Robertson's "Theses initiatives will make a real difference."

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Prices are set by what people are prepared to pay. More fool them, though.

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People would be happy enough to pay less if given the opportunity.

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More to the point, prices are set by what people are allowed to borrow.

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If houses are overpriced by 30% then they were deemed "affordable" pre-Covid. Clearly, they were still dramatically unaffordable back then. House prices are at least 50% unaffordable, especially in Auckland.

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Never said they weren't unaffordable back then. And I'm on record saying Auckland is 50% over based on a cash on cash return. The correct metric to use for affordability is 3x median household income. Anything else is just a redefinition to make the unpalatable easier for the masses to swallow.

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I bought my first place in Auckland 13 years ago for 300k, I had a decent deposit and was on about 65k at the time. DTI of about 5 for a cute little 2 bed cross lease brick and tile on the old Auckland City fringe. Loved it, but that was enough to take on thank you. I am under 40 but feel like an old codger equally horrified and amazed at the level of debt people are willing to take on these days, in Auckland in particular. Something needs to change and it is seriously overdue.

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30% fall sounds about what is needed.

June 2021 average house price $943,184. June 2020 average house price $750,649. A 30% house price drop on today's prices would take us back to $660,228 which we can see was the price in April 2017. Let's call it the Labour effect. The average wage of $55,120 means we are still at 12 times a single persons wage but given the governments determination to use 2x a persons wage to calculate affordability it comes down to a 6 time multiple.

So better, not great but better.

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Nah. It will be introduced at a ridiculously high level with carve outs. If it was going to make a difference they wouldn't be doing it.

The government and its institutions have deliberately and methodically engineered this housing cluster****.

Spare yourselves the disappointment and wasted time of waiting for them to do anything meaningful about it and plan that move to Australia or beyond.

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I'm quite happy in NZ - I bought in Chch a couple of years ago, prices aren't so bad here.

I do disagree though - there's a real snowball of measures building and I think the Government will eventually get on top of things and prices will stabilise or fall. Supply continues to grow, low immigration, interest deducibility is being removed, DTIs and LVRs coming in to play, bright lines extended. Once interest rates start to tick up as well we'll have the full set.

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I hope you're right.

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Silver bullet or any other kind won't matter if you're deliberately missing the target. Still waiting on a clear statement from government that house prices must come down. There is no other way out.

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Yeah there is a big different between wanting house prices to slow and wanting them to fall. Yes there is another way out for individuals and that is moving to Australia (ex Sydney).

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.

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As an investor I wholeheartedly support this. DTI limits will reduce finance available for new property development and push prices of existing dwelling upwards again over the long term. RBNZ rewarding the investors HODL strategy.

Come aboard our rocket gentlemen, to the moon we go!

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The power of unintended consequences.

It pays to be on the right side of history.

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What side of history is that?

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I'm guessing the one where they have to live in a gated community to protect themselves from the abject poverty outside...

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Unintended? The aim of RBNZ and Government has always been to increase house prices. This is the well that must never run dry.

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Haha, your logic is pretty funny, hope your stubbornness won't cost you too much.

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The margins on new builds are pretty thin. It won’t take much of a short term drop in house prices to curtail new development which will have the effect of pushing up prices in the medium to long term.

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And I suppose logically the reverse must be true - the short term rise in house prices has encouraged new development which will have the effect of driving prices down in the medium to long term.

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It certainly encouraged me to complete a couple of new builds and then look to expand with a block of new builds right up until the government decided to make housing their favourite whipping boy. Now I have no idea if building will be profitable in 2 years from now (circa when the builds will complete) or if the govt will make more unpredictable moves to make housing less attractive which may negatively impact my ability to sell any builds that I commission.

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Well, think about it this way, a young couple own a very modest house valued at $1m with a $700k mortgage. Combined they earn $120k. Now they want to build a larger house with hopes of having a family. Now, if the DTI is 10, what can they afford under the cap?

Well $120k * 10 = $1.2m but they have already used $700k under the cap so they can only afford $500k. In most places you wouldn't but a section for that much less a house. Consequently they won't be able to finance a build.

They could of course sell their existing house but that would leave them exposed without a foot in the market. Probably too risky when house prices are moving up so quickly.

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You have to be from Auckland. You wouldn't be getting "a very modest house" for 1M in Northland. You'd be getting either a 5 bed new build or a very tidy character 3 bed on a lifestyle section within 15 minutes of town centre (I'm talking Whangarei which is at the pricier end except for maybe Kerikeri and BOI)

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Only live in Whangarei if you don't mind being mugged. Aggravated robberies are very common there. You get what you pay for...

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Clowns.

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Pathetic show and still signaling minor changes & fueling the market (FOMO) by pre announcements.

What about capital gain tax, can you implement once the house price will double again or still not?

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I'm reminded of the Ents in the Lord of the Rings. "No need to be hasty"............

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Reserve Bank Governor Adrian Orr describes high house prices as 'first-class problem', alternative is 'depression'

Is this about turn going to be better managed?
Global debacle so far:

Here’s the thing. Despite over a decade of deranged Federal Reserve policy – I use that word intentionally to mean both “wildly outside of the historical range” and “bat$%!# crazy” – bank loan growth has been utterly unremarkable. So the growth we’ve seen in bank deposits primarily reflects the fact that the Fed has replaced trillions of dollars of Treasury bills with base money. That’s really the crowning accomplishment of QE – creating a massive pool of zero-interest hot potatoes that someone has to hold at every moment in time, and that does virtually nothing but destabilize the financial system with yield-seeking speculation. Link

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"Breaking news: RBNZ gets Govt approval for debt-to-income moves, will implement these; will also tighten LVR rules from October."

Why from October as will this not lead to rush and more demand giving another push in house price between now and October Mr Orr.

Best example for layman (as cannot be called experts) in RBNZ : Even for small item purchases when know that countdown will close / have restriction, their is rush and chaos. So you are adding fuel to fire by giving window of opportunity to go on rampage from now.

Taking ages to impliment DTI as is must to protect FHB who under pressure are buying much beyond ( know argument is that banks do not allow over a certain limut but reality is that is possible) and if any change in circumstance could be disaster, specially in this uncertain time.

Under DTI not able to buy a house is disappointing but buying beyond and than repenting is disaster. Anyone who know of FHB will know how desperate and frustrated they are to take all risk, fair also as uptill now Orr and Robertson by their action or inaction has led to FOMO and FOMO is the biggest contributor of Housing Crisis as even those who had one house besides FHB and speculators are rushing to buy another house as feel that only option for fast, easy, big and safe money is housing there by turning basic need to speculative chip.

Other advantage of DTI is that FHB may have disappointment for short term but if ponzi stops will be good to them only.

What is government and RBNZ going to do about INTEREST ONLY LOAN - being biggest contributor of speculative demand though further LVR restriction is good ( any measures to control is good) but not that effective as most houses now are sitting on 50% to 100% equity.

One of the biggest difference in auction room is FHB on interest and principal loan compare to speculators who are on interest only loan - multiplies their purchasing power over FHB and only if they are not interested can FHB buy like leftover.

Interest Only is good tool for emergencies but not to fund housing demand specially under crisis - No rocket Science but have never seen any article on it by experts or media person.

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Sorry most of expert & media persons are managed by current lot.

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The picture sums it up perfectly... The sign is up but half complete and barely holding...

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You can't even see the horse as it has bolted that far off into the distance..damage already done

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Here's all the levers the Govt is not pulling to fix our housing catastrophe - Berrnaed HICKEY

https://thekaka.substack.com/p/dawn-chorus-heres-all-the-levers?token=e…

TO LITTLE TOO LATE. AT THIS LATE STAGE BOTH JACINDA AND ORR HAS TO GO WITH LEAST REGRET POLICY AS THEY DID TO BOOST THE HOUSING PONZI AND HAS TO DO IT OVERNIGHT JUST LIKE LAST YEAR INSTEAD OF PLAYING WITH ADVICE AND TIME.

stop B S.

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Any decent piece of section anywhere in NZ is now more than half a million dollars. Some are above 800k for a 500sqm section. Any average decent house with low specs you build on it these days will get you close to 1.5 million. How many can afford it?
Where is the country leading too?

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NZ does not has a history has of violent protest but never did it had history house prices doubling in a year. Not to test the limit.

Even now is the time as better late than never otherwise this country is being led to massive inequality leading to arsonist, riots and the entire responsibility will be on Prime Minister and Governor of Reserve bank.

Jacinda should never say that am aware of the crisis and NO one should remind her like she did. If she is aware why were they waiting and watching when all data every week suggested otherwise.

They do not show this calmness last year so why now.

Will she now along with RBNZ go all out and not hide behind excuses.

Time is up.

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There is no one to initiating the protest, if there is some one who come forward & start making first step than i believe it will be a biggest protest in NZ history, against this shameless Govt...

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We got ours last year at 320k, we thought we were paying a lot. Now similar sections are 500k+, it's totally batty.

When a SECTION is 10-15 times median salary, surely they must see there is a problem? Naaah, only when it's 100x do we have a problem right?

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There are people buying new houses off the plan , with just a small deposit and when completed, selling then for a quarter of a million more than they paid. As a quarter of a million profit for not doing any work. The whole thing is ridiculous.

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That's exactly what I did.

And I'm doing it again.

I'm aiming for 500k capital gains all up. I've realised half that already. 20 hours work for each.

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After Tax ?

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Sure, who cares when I've gained 500k without doing much work. Tax me. Yipeeeee!

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Tax? Ha ha ha. They probably used some gordian knot of Trusts to make it appear as a loss.

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In 2018 our 632sqm plot of land in Wellington (downhill walking distance to CBD) was valued at $540K. I shudder to think what it's going to be revalued at later this year. It may soon be like Auckland where for some properties the value of the house on the land is almost margin-of-error stuff.

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Assuming the property is not vertical and requiring of crampons to access it will have gone on a tear so congratulations.

June 2018 Welly avg 797k, June 2021 Welly avg $1,179k so about $400k in the money. I would choose a green Lambo if I was you.

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An announcement about an announcement and a void in the detail. LVR headline, as pointed out impotent as most banks are already doing it. DTI discussion only. Watch the market go more nuts as folks now recognise there is a legislative guillotine coming early 2022 that may keep them out of the market.

IOM, DTI then LVR with immediate effect. CGT on all homes (5% of value) to be put into state housing enterprises (rent to buy ideally) let the Ponzi fund the problem.

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As the pressure is on them, this is all lip service to get the heat of them - Aunty Jacinda and Uncle Orr.

If serious as were last year, so announcend the policy overnight as was emergency for them, What if the housing ponzi stops ( remember that it was just a though / possibility) but here is actually happening ( not a thought or possibility but reality) and this people are still in consulting mode and playing with the time.

Heat on them, to deflect have come out with sound byte with no real intend or forced will come out with diluted version and too with time gap.

Can anyone confirm with Mr Orr if his period of Wait And Watch is over and will now go with Least Regret approach ( though too late).

Have doubts that Jacinda cares as she is intelligent enough to know that this is her last term as may have got few percentage vote of National party ( which got her absolute power) but in process next term is losing traditional base.

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Adern looks completely broken in my view. I see shes taken sick leave today....wonder if this was to avoid questions around the human rights media release...

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No a 10% crash in the polls will do that to you.

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Consulting means no DTI til mid 2022, by which time prices will not be rising anyway.
Pathetic.
Build enough decent rentable houses to deflate demand and raise rates. Nothing else will do the job
And stop QE forthwith also

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Smells like an excuse to not normalise interest rates.

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Yes, the brake must not be used, hands out the window, door open, feet down Flintstone's style, but no braking. That's due to the brake being connected to a trigger for the biggest bang we can imagine.

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There is a separate article in Interest.co.nz about foreigners selling NZ houses faster than before. How does that affect the pricing and who is buying those off loaded properties ? Investors or FHBs ? I would presume most of them were ghost houses, huge and not easily rentable ?

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Perhaps its all those peole with Chinese sounding names getting out now that they made a million $$ on their Auckland properties...time for the millenials of NZ to hold the debt relating to those properties while the foreign buyer takes the profit offshore...but that was never going to be an issue (eh previous National government?)

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Definitely ghost houses. They are so easily identified by their staged furniture.

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Better late than never, even very late.

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"Breaking news: RBNZ to hit harder against still rampant housing market"

Good Headline but is this not the only thing that government wants - Good Headline to divert attention and to potray that are concerned.

How come all experts and journalist, not able to see through and get carried away and this is exactly what RBNZ and Government want.

May be Orr is under pressure to raise OCR but not want to do so is to divert attention. Jacinda too after been low for months on Housing Crisis feel the heat so need distraction.

Have to look beyond headline and will be important to watch if DTI though delayed will be implimented from October or will start consultation or will announce another six months grace before introducing....devil is in details.

LVR definitely being increased, it seems though will not be a deterrent but helps to control sentiment and now with least regret should be minimum 60% in present situation where house prices are up as much as 100%.

One thing good about heading is that it accepts that even after five months of so called housing policy House Price is RAMPANT and headline should have further added :

Breaking news: RBNZ to hit harder against still rampant housing market and hopefully Orr has learnt from his mistake and now finally ready to change gear from wait and watch policy to least regret poliy.

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Haha those calling for a drop in house prices, let's talk again in another year, where we are sitting on another record price.

Prices aren't going down folks. Doesn't matter what you do to it. It's too late now. I've seen this happen in so many countries over the last decade. None have gone down at all.

The only way you can force prices down is if you restrict the number of properties people can own. For example: 1 property = 1 NZ resident. Anything over that, it's illegal and you will pay hefty fines/go to jail.

Any politician want to go bold and do that? I doubt it.

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That is why a tax on multiple properties is needed. Or land taxes. Changes will ching eventually but things move slowly in nz

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The whole last decade? Wow. You must be Mensa material with your powers of extrapolation.

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Easy to hide behind a computer and make comments to insult other peoples intelligence without having one of their own. People were right, the NZ education system is very behind. Yikes.

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So they have said that there is risky lending occurring and it hasn't reduced after LVR changes. Why is risky lending occurring at all? I thought they were stress testing all borrowers incase there was a big correction?

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Bingo!

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DTI of 7+ I'm guessing, anything less will knock out FHB and be political suicide, they already signalling they don't want to push FHB out so that my guess. As for the LVR, mehh that will do bugger all

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Now seriously, with all this “we’ll hit hard policies” do you guys think the ponzi is going stop? When and how?

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Does anyone else find it worrying that prudent lending has to be imposed on banks by the RBNZ ?

Do the incentive structures within banks encourage risky lending so bank employees who approve the lending don't care about risk because any consequences are in the future while their bonuses are now?

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Honestly, I think those days of cowboy adventurism by banks have long gone. Now Banks are leading the RBNZ. Witness ASB raising the LVR for rentals and the Interest rates ahead of RBNZ this year. Banks seem to be scared of lending and are looking to RBNZ to take the heat off them by controlling the macro economics better. Banks are aware that the pandemic is still not over and the current euphoria here may be short lived, if events overtake us.

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My very recent experience with kiwibank extending my mortgage for renovations is that they needed proper current quotes to make up the entire amount (which was over 7 quotes I had to collect), and this was for total balance debt

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This announcement is going to set off a frenzy of house buying activity across NZ with all those who feel that further changes may prevent them securing a property acting in desperate fashion. Could see a sudden jump in median prices across NZ over next 3 months unless RBNZ slap these new policies immediately.

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Total Borrowing (including all short term debt) should be no more than 3 X Total Household Income, no loop holes, no get out of jail free card. The public needs protecting from the banks and themselves, its that serious.

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3 X is a total joke mate, is it was that low I would never have been able to buy a house. Its not that serious, this is just hand waving and virtuous signaling to the public that they are listening and doing something when if fact its all smoke and mirrors. Its totally irresponsible to suggest it so early and not put out the numbers. This just creates even more panic in the market due to the uncertainty that buyers will be cut off.

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The answer is simple. Buy a liveaboard boat. Stay here for as long as you can stomach it, sail away somewhere sane when we reach peak insanity, I don't think its far off.

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Maintenance on live aboard boats is something else. And don't get me started on berth rentals....

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YEAH ! NAH ! JUST ANOTHER SMOKE SCREEN !
Dti's are just another red herring everyone learns to live with.
The last time DTI in NZ was at the '3' mortgage rates were 18%.

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Did anyone notice this only applies to owner occupiers? How exactly does this slow down the land and building bankers that are hoarding property? I can see where this would ensure those residing in a home are forced into stability but how does this help ensure that home ownership is available to them and the entire market it kept stable from the investor classes?

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Only the LVR changes are for OO only, the investor LVR restrictions are already tighter. DTI will likely cover everyone.

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More socialist communist inteference in what should be a free market economy where people are, free to do as they choose. Next we will be told when we can go to the toilet.

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Waaahhhh!

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Freedom?
We have a whole generation who have no freedom to buy a house unless they can lever off parents.
Greed is destroying us.

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so RBNZ introduces a restriction on FHBs when the government said they would endeavor no to do so. They account for 19% of market, Investors that borrow 19% and owner occupiers 62%. So the tax grab went well with investors(tick) everyone familiar with the RBNZ reporting knows this. The FHBs picked up a couple of percentage points off investors. So they worried less than 20% borrowers are more risky but they are exempt when it comes to new builds(competing with investors in the new build space-really!!!!). So does that mean the market distinguishes between a less than 20% borrower that bought a new build vs existing and the potential risk of negative equity just applies to the existing property. A year 9 economics student could frame up a better housing policy-hint try curb demand then effectively people pull back from listing and prices keep holding. No clue. RBNZ governor and Minister of "finance" battling to be aligned.

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2014 - It's National's fault! Vote labour to get it sorted!
2017 - It's the Chinese! Vote labour to ban them and deliver kiwibuild to get it all sorted.
2020 - Fails Kiwibuild. "It's the speculators! Vote labour to help make house mroe affordable for first home buyers."
2021 - It's the greedy banking system...... even though we printed money to drive up the inflation. Let us make it harder for first home buyers to buy. Then we wait it out!

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Keep talking about housing shortage. There are quite a few houses around that are vacant or people own and just wait as the prices keep going up until and make good capital gain with no worries about renting. Why isnt there a rule where if you own a property and are not living in it or renting it you pay a fee back to the govt weekly. Make every property around usable.

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Most likely those empty looking houses are wiating through the slow consent process. Only dumb or super rich would buy a house and leave it empty. Dumb would not be able to afford a house to leave it empty, super rich would happily pay the goverment and still not rent out. With that extra money for goverment, it would go on Jacinda's personal branding PR campain, rather than to the housing project. Votes are more important than anything else.

If you think the labour govertment is capable solving this, look at the 602 Kiwi Build they've done to date, supposed to be 100,000 by 2028, we are almost half way through.

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Most likely those empty looking houses are wiating through the slow consent process. Only dumb or super rich would buy a house and leave it empty. Dumb would not be able to afford a house to leave it empty, super rich would happily pay the goverment and still not rent out. With that spare money, it would go on Jacinda's personal branding PR campaign, rather than to the house the poor. Votes are more important to them than anything else.

If you think the labour govertment is capable solving this, look at the 602 Kiwi Build they've done to date, supposed to be 100,000 by 2028, we are almost half way through.

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