How much higher can they go?
Debt to income ratios of particularly first home buyers are still going through the roof, a crunch of the latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio (DTI) shows.
The latest figures show that over 70% of recent Auckland first home buyers (borrowing between them over $500 million) were doing so on a debt to income ratio of above five.
Ratios above five are regarded as high in the sense that the RBNZ follows them closely.
The RBNZ's DTI figures are released quarterly - but compiled monthly. As we usually do, we are comparing the last month of the latest quarter with the last month of the previous quarter (IE comparing June figures with those for March).
The latest figures are given additional significance by the fact that the RBNZ has now been given official sign-off by Finance Minister Grant Robertson for the introduction of some kind of DTI servicing instrument in the RBNZ's 'macro-prudential toolkit' - a toolkit that already includes the in-use loan to value ratio (LVR) restrictions.
The key sticking point for Robertson in agreeing to sign off on a DTI measure was the first home buyers - he didn't want them included, but has now conceded, with the provisio that "the Reserve Bank will need to have regard to avoiding negative impacts, as much as possible, on first home buyers..."
The latest figures show that in any DTI measure the RBNZ could hardly afford to exclude the FHBs - since they are the ones most gearing themselves up. In fact the latest figures showed that compared with three months ago the owner-occupiers were gearing themselves up, certainly in Auckland, by slightly less - although this was coming off a high level.
The detail shows that in June Auckland FHBs borrowed $766 million. Of this, $546 million - some 71.3% - was borrowed on a DTI of above five. That was up on the 67.7% ratio borrowed by the same grouping in March and 58.5% as of June 2020..
Nationally the FHBs borrowed $1.656 billion, with $953 million (57.5%) on a DTI over five. This is also up from March, and very well up on a year ago.
The Auckland owner-occupiers borrowed $1.742 billion, of which $1.005 billion (57.7%) was on a DTI of over five. This was actually down on the 60.6% recorded in March, but well up on the 51.3% of June 2020.
Nationally the owner-occupiers borrowed $3.83 billion, with $1.72 billion (44.9%) on a DTI of over five. That was down slightly from 45.4% in March but well up on the 35.9% of a year ago.
The table below shows the percentage of new mortgage money with debt-to-income ratios of over five times:
| Group | Jun 21 | Mar 21 | Jun 20 |
|---|---|---|---|
| FHBs nationwide | 57.5% | 53.5% | 40.8% |
| Auck FHBs | 71.3% | 67.7% | 58.5% |
| Non-Auck FHBs | 45.7% | 41.7% | 28.6% |
| Other owner/occ nationwide | 44.9% | 45.4% | 35.9% |
| Auck other owner/occ | 57.7% | 60.6% | 51.3% |
| Non-Auck other owner/occ | 34.2% | 33.4% | 26.0% |
These figures look too high to be sustainable. Next thing is to see what the RBNZ does about it - now it can.
45 Comments
Yes. They are a big part of the problem.
These restrictions are a too little, too late attempt to reign in an extremely dangerous credit bubble that is now primed to burst catastrophically. The RBNZ doesn't give a flying f*** about FHB and neither do the government for that matter. It's all lip service and frowns and optics.
They know only way out now is to let inflation rip into double digits or to have a "disorderly correction" in asset values. Guess which one they are going to choose?
"Yes. They are a big part of the problem." Only if having a stable roof over your head is considered 'a problem'.
I would have said 'the problem' lies somewhere between the ears of the RBNZ Governor and the Finance Minister. I can't be certain that any solution can be found in said locale, however.
We are on the same page. Home buyers in a desperate situation are being provided reckless amounts of credit. Their emotional bidding against each-other is driving up the market.
Real estate agents are laughing all the way to the bank. The bank is laughing too. They will laugh even more when we bail them out.
These restrictions are a too little, too late attempt to reign in an extremely dangerous credit bubble that is now primed to burst catastrophically
Yet nobody in the ruling elite or its puppy dog media will even entertain the idea that its a potentially destructive, credit-driven property bubble.
It's not really a surprise given how high house prices have rocketed compared to incomes. In fact, I am surprised they aren't higher...
When the RBNZ puts in the DTI restrictions, it will clearly have to do them at high levels. Because if it puts them in at 3 or 4, then when it comes for those FHBs to re-fix (remember they are almost all on 1-2 year terms), their bank is likely to ask some hard questions about upping their payments or (impossibly) upping their incomes.
Way to, once again, paint yourselves into a corner finance minister and RBNZ...
Professional troll...
https://www.aruma.com.au/wp-content/uploads/2018/03/trolls-main-image.j…
"As the Reserve Bank ponders the likely introduction next year of measures to limit high debt-to-income lending, latest figures show Kiwis - particularly first home buyers - are continuing to stretch themselves further and further to buy houses"
FOR THE SAME REASON TO PROTECT FHB FROM OVERSTRECHING UNDER FOMO - DTI SHOULD HAVE BEEN IMPIMENTED LONG TIME AGO BUT STILL BETTER LATE THAN NEVER AND FOR GOD SAKE MR ORR SHOULD NOT USE TECHINCALITY / ADVICE TO DELAY AND DILUTE.
DTI will hit speculators...hard. they just need to do it immediately.
The $1m house only rented at $45kpa suddenly requires lots of the dreaded "E" word....equity. Banks will apply their own measures to control FHBers, controls their greed has hidden in recent years. Let's face it, the moron bubble has only served the banks. ASB record profit is witness to that.
Labour chooses asset deflation or it sacrifices the whole economy to stagflation. Well. Done.
Lmao DTI won’t hit speculators, it will hit first home buyers and buy to hold investors. If you know you can’t borrow more money you will sell one, bank the proceeds and use that to flip properties. If you can’t afford that you just chuck a deposit down on an off the plans purchase and on-sell prior to settlement. Just like the tax changes and every other regulatory change over the last 4 years these will not impact on those with money, only young people in their 20s and 30s who have to work for a living.
https://www.nzherald.co.nz/nz/the-conversation-why-is-labour-trying-to-…
For those Blinders..
They want others to join their 4 tier system......as they are the main beneficieries of rising prices of Houses, along with other over leveraged individuals.
As are the Banking System, never seen a Bank go bust on such Monumental Lending. Particularly as they have 'stolen" Savers money...the cheepskates...it would be indelicate of me to call them thieves...as they fiddle away.
The Working Class and the Imported Labour are minor beneficieries....It is Big Money that Matters and it is getting Bigger for Some. and ...dare I say it it is the ones with their hands in the Till, that can talk Till they are Blue in the Face....this ain't a Labour Government it is Total Disgrace, all talk, Free Ride..
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