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New Zealand

DTI limits go to bed next year

CoreLogic chief economist Kelvin Davidson said the level of debt and income will become a reality for mortgage borrowers next March.

Tuesday, April 11, 2023 at 3:21 PM

Sally Lindsay

The Reserve Bank (RBNZ) has not said it will introduce a DTI, but has indicated that it will become an official tool to limit mortgage lending alongside the LVR next March. .

Davidson has said they will be activated next year, but that’s not to curb lending in this housing cycle, but in the subsequent cycle, house prices will fall for two years, like during the Covid pandemic. It will not rise by 40% in

Davidson says last week’s RBNZ release on debt-to-income ratios said nothing new. He said, “There was no indication of whether he would be five, six or seven times his income, or any restrictions such as waivers or speed limits.

“The idea was to put the DTI limit in front of people to remind them that the RBNZ is still under consideration and may introduce it.”

For mortgage holders and new borrowers, he said, a March launch wouldn’t be a problem as risky lending has been curbed. “The system has not expanded that much.”

Davidson said that once DTI is introduced, it is likely that this cycle will not be binding.

“Recently, interest rates have risen, making it difficult for borrowers to pay off their mortgage debt, and housing prices have fallen, so they don’t have to borrow as much,” says Davidson.

“That is why the DTI that comes into effect next year may not be binding as things are tightening.”

He says introducing them would try to cap future real estate cycles, tie home prices to income, and limit home price growth to no more than 10% year-over-year.

“It won’t limit growth anytime soon, but it will limit it in the long run. House prices won’t go all the way down, but they won’t rise so quickly in the future.”

The Reserve Bank has indicated it wants DTI to limit the number of homes investors can own. Analysis from the Property Investors Federation suggests that most landlords in this country are daddy investors who own two or two properties at most.

Davidson said the DTI will put a damper on how much money investors can borrow, and the RBNZ believes it will limit the number of properties you can own relative to your income.

The company believes this will eliminate many, though not many, large landlords.

Davidson said no one knows when the DTI crux – the level of borrowing relative to income – will be presented by the RBNZ. “It could be included in the banks’ six-month financial stability reports, which are usually released around May and November, or, as is the case with the LVR, it could be quietly released at any time. ”

Davidson said the RBNZ wants to keep concepts as simple as possible, including definitions of income and liabilities.

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https://www.goodreturns.co.nz/article/976521574/dti-restrictions-to-bed-in-next-year.html?utm_source=GR&utm_medium=rss&utm_campaign=DTI+restrictions+to+bed+in+next+year DTI limits go to bed next year

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