And still the debt to income ratios of New Zealand house buyers go up and up.
Not too surprising, I suppose when house prices keep going up and up.
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 RBNZ has expanded the size and scope of the data presented to include investors and a bigger range of DTI ratios.
In Auckland in September, over 76% of first home buyers (by amount - $330 million versus a total of $432 million) had mortgages with a debt to income ratio of five or above. That percentage is up from 71% in June and 57.5% in September last year.
But it's not an FHB story. All the DTI figures are going up. The new figures highlighting investors and owner-occupiers with investment collateral are particularly 'impressive' too - in a very geared and high way.
The latest figures are timely, coming as they do in the month when the RBNZ is expected to begin consultation about the potential introduction of debt to income measures into its 'macro-prudential toolkit', alongside the already implemented loan-to-value-ratio (LVR) limits. The RBNZ is stressing at the moment that while it wants DTI measures as an option it won't necessarily use them right away.
The RBNZ takes a close interest in loans that have a DTI of five and above. Internationally that's about the level that is looked at - in the UK for example - DTI measures have been levelled at DTIs of above 4.5.
However, in the wrangling that took place between the RBNZ and Finance Minister Grant Robertson (who had wanted first home buyers excluded from any DTI measures) the RBNZ appeared to come close to promising it wouldn't apply the DTIs any lower than six or possibly even seven.
As mentioned, the RBNZ has expanded the scope of the figures that have been released. Previously it didn't break out the DTI figures for investors or those for 'other' owner-occupiers (other than first home buyers) that have investment property collateral.
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 September figures with those for June).
In this article (including the table below) I have focused on the information we have focused on previously, which is looking at the latest month's figures for FHBs nationwide, FHBs in Auckland, FHBs in the rest of the country, owner occupiers nationwide, owner occupiers in Auckland and owner occupiers in the rest of the country.
But below the table, also, are some of the highlights of the new information that have been pointed out by the RBNZ. I will look at that more thoroughly in a separate article tomorrow (Tuesday 16th).
The table below shows the percentage of new mortgage money with debt-to-income ratios of over five times:
| Group | Sep 21 | Jun 21 | Sep 20 |
|---|---|---|---|
| FHBs nationwide | 58.3% | 57.5% | 43.3% |
| Auck FHBs | 76.4% | 71.3% | 57.5% |
| Non-Auck FHBs | 47.8% | 45.7% | 32.3% |
| Other owner/occ nationwide | 46.3% | 44.9% | 37.7% |
| Auck other owner/occ | 61.5% | 57.7% | 49.0% |
| Non-Auck other owner/occ | 35.7% | 34.2% | 30.3% |
These figures - again - look too high to be sustainable. Next thing is to see what the RBNZ does about it - now it can.
And these are the highlights from the new information pointed out by the RBNZ itself:
►Other owner-occupiers with investment property collateral and investors with a DTI of over seven each accounted for around 35% of the total new mortgage lending to these borrowers in September 2021."This is about five times more than the share of first home buyers with DTI of over seven."
►The share of new mortgage lending to investors with a DTI of over nine has more than doubled over the past two years, increasing from a low of 4.1% to 10.2% in September 2021.
►Other owner occupiers with investment collateral have also seen a rapid increase, rising from a low of 4.8% to 9% in September 2021
►The average share of Auckland loans to Investors with a DTI over seven climbed from a low of 28% in September 2019 to 47% two years later. Non-Auckland loans at DTIs over remain significantly lower but have more than doubled from 12% to 28%.
48 Comments
Is a DTI of 6/7 for a 30-year mortgage the New DTI of 4/4.5 on a 25-year mortgage? If so, the even Newer Normal will be a DTI of 10/12 on a 50-year mortgage! Coming from a friendly lender near us all, real soon....
(NB: The longer the term, the less each principal repayment tranche can be = more debt can be assumed. This is standard practice for any mob owed money - extend the terms. The trouble is Extended Terms = More Duration Risk that will inevitably lead to more default, but that will be for some bunny in the future to deal with)
Very rough figures here; Say 5 years ago you bought a house for 500k, borrowing $400k at say 6-7% Over 30 years you've paid back say $800k
Now same house is $600k, you borrow $500k at 3% So over 30 years you've still only paying back $800k Yes/No ?? Anyone?
Oh and somewhat off topic here, will we see RVs rise next year throwing everything into the fire again?
Goodness me ladies!! I said "Very rough figures" and yes I know that interest rates will not stay at 3% for 20 years, I couldn't go back and edit that straight after I posted my, *HYPOTHETICAL* question.. I was hoping that someone would at least get the gist of my question, rather than the pubescent high school attacks (insert eye-roll here)
I guess this is what Orr was signalling, in order to create even more FOMO at the beginning of the main selling season. He`s either a clown or a manipulator with a talent for plausible deniability. If he intends DTI to actually reduce risk, he either does it before the main selling season, or straight after, but without so much notice.
How that guy still has his job is beyond me. Remember how he slashed the LVRs. He needs to realise that he can implement DTI with immediate effect then roll back slowly, rather he will be consulting for the next 4 years. How do we get rid of incompetent public servants?
No way you cannot get rid of parasites that easily, they will rot the society's basic fabric and not even have a minuscule regret of what they have done not to current but also to future generations.
The only best thing they have done is to make a stack of money for themselve, this is corruption.
He is independant, he does what he wants, that is why he is always fighting Robertson in the media.
By "what he wants" ... i mean follow his deep rooted socialist agenda, they should audit these guys views and core values before appointing them. Its like Russion Rouletee.
If a housing market is such that people on reasonable income are locked out of it, then it is proof that the market is broken and best avoided altogether even if that means seeking better opportunities elsewhere. Not saying what NZ is either way, just that if your assessment is correct jumping out of nz seems like a better idea than jumping into property.
"New figures show house buyers are still stretching themselves ever more as the RBNZ prepares to consult on possible DTI limits"
David Hargreaves, truth is that RBNZ is in not serious about DTI though is must to protect FHB from overstreching under FOMO. Not able to buy a house under DTI is disapointing but better than borrowing in extreme and repenting if situation changes even slightly or if interest rates goes up and ......
Mr Orr asked for DTI and it has been months since given the tool and still no action, even have not yet started so called consultant and are manipulating to play with time with hope that they will be able to deflect.
It is blatantly clear that Orr has no intent and trying to deflect and if under pressure have to act than trying to delay as much as,
This is exactly what we need to control the irrational exuberance.
A 6/7x DTI for FHBs and investors alike. This should mean that FHBs still have decent access to borrowing, whereas investors can't keep leveraging their equity from a property and borrowing to infinity.
Why does this feel a little like "we've been here before"- oh thats right we have in the US, Ireland and Spain in 2008.
The difference is in those countries when you cant pay the loan - you leave the keys in the letterbox and walk away- whilst in NZ - the banks will pursue you until you go bankrupt.
8 up votes for a complete load of bollocks.
The vast majority of US mortgages are full recourse, and neither Ireland or Spain have significant non-recourse lending.
https://www.uria.com/en/publicaciones/3119-heading-to-nonrecourse-mortg…
I will be very interested to see the ratio of these first home buyers based on their ethnicity.
In some cultures, more stress is given on owning a house than anything else. And they only spend money on three things cars, houses and food. Nothing else. They do not spend their money on anything else and are very frugal so they can afford DTI of 8/9. And these these the people who then speculate and buy more houses and the cycle continues. Just wondering if this kind of culture is good for the economy and the small country like ours?
High nz dti numbers look scary, but I think behind them is a reality that is not quite as scary as it appears.
Let’s face it many kiwis have real income that could never be included in these figures. Ie side hustles & other non frequent income.
I guess we’ll find out how exposed everyone really is over this current tightening cycle.
Starting out in the UK we were advised not to borrow more than 3 times gross household annual income. I have always stuck to this rule and therefore live fairly modestly compared to friends on similar incomes. I’ve probably missed out on a lot of capital gain, but I have always had a good nights sleep.
If someone can explain to me why a couple with no kids netting $13,000 a month (100k each) borrowing a million dollars ($6000/month in repayments at 6%) can’t afford to live on $7000/month they should probably post their own bank statements on this website so we can work out how anyone spends that kind of money.
That’s what a 5x DTI is.
Based on my decade of experience in the lending industry I’m yet to meet a lender who doesn’t take quite an intense interest in the borrowers ability to pay them back. They’re an extremely vested interest. If they get it wrong they lose the money they lent out. They have no reason to lend money to someone they don’t think the borrower can repay because they don’t get it back.
This is simple, simple stuff and given the lack of defaults in the banks credit books there is absolutely no reason DTIs are necessary or should even be considered. It’s the kind of regulation you would expect in a country with a limited banking operation to stop banks from going out of business by lending too much to those who can’t repay it and collapsing as a result. What is the case for it in New Zealand?
Of course DTIR’s are still heading for the stratosphere- completely aside from FHB’s having FOMO - how does anyone think Auckland SME businesses are staying alive right now? If their homes weren’t going up by $40k a month they’d probably have hit a few more walls by now. Problem is- they have to pay it back somehow
'Home buyers' debt to income ratios still heading for the stars'
RBNZ should act instead of playing with time before many FHB under FOMO are screwed by overstreching.
What consultation are they talking about, is it not just a ploy to delay if cannot avoid. First waiting for DTI tool, than sleep over it for six months than talk about consultation for six months and finally IF decide take another six months therby creating more FOMO and will see FHB rushing to bead the deadline.
This is nothing blatant misuse of power and time for change.
RBNZ, if have to announce should do it fast instead of creating FOMO leading to stamping among FHB to buy.
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