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Debt to Income Limits Approaching-Good Return

After the Reserve Bank added a debt repayment limit to its policy toolkit, the debt-to-income limit on loans came one step closer to reality.

Wednesday, June 16, 2021 10:41 AM

In February, the government requested the RBNZ to analyze the benefits of DTI in the midst of rising house prices.

The Reserve Bank today announced its advice to the Minister.

According to the central bank, DTI “is likely to be the most effective additional tool that reserve banks can deploy to support financial stability and home price sustainability.”

The Reserve Bank concludes that DTI “has a limited impact on first-time homebuyers, but has the strongest impact on investors.”

He also concluded that DTI limits “will be a tool to complement loan-to-value limits to address various aspects of mortgage-related risks. DTI reduces the likelihood of mortgage defaults and LVR Significantly reduces bank losses if the borrower defaults. “

In response to RBNZ’s guidance, the Finance Minister has added a debt repayment potential tool to the Reserve Bank’s policy toolkit, provided that the implementation is designed to avoid impacts on first-time homebuyers. did.

The RBNZ will work with the Treasury to update the memorandum.

“We don’t have the authority to directly target home prices, but monetary policy tools help keep prices from significantly deviating from sustainable levels,” said Adrian Orr, governor of the Reserve Bank.

“‘Sustainable home prices’ are the levels at which prices are expected to rise over the years, reflecting underlying factors such as population growth, construction costs, land supply and interest rates. thinking about. .. “

One step closer to DTI is the latest blow to investors following the government’s radical housing reforms.

The landlord was hit by an extension of the bright line test and a planned removal of the interest payment deduction for the minister to crack down on investor activity.

tag: DTI landlord lending Real Estate Investment RBNZ Reserve bank

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Debt to Income Limits Approaching-Good Return

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