What do DTI limits look like?

The Reserve Bank has added a debt-to-income limit to the regulatory toolkit. A recent note from the central bank reveals potential settings if the new rules come into force.

Wednesday, June 16, 2021 16:06

The RBNZ has added DTI to its policy sector, but there are no firm plans to introduce DTI rules and this issue will be under discussion.

However, guidance shared between the RBNZ and the Treasury last month reveals potential levels of DTI settings.

“In the current market, a DTI cap of 7 suggests that a DTI cap of 7 will prevent investors from buying, while minimizing the impact on homebuyers,” the central bank said in a May communication with the government. Has been done. “

The RBNZ warned that a low cap of six could hurt the first homebuyer.

“Reducing the DTI cap to 6 is expected to have a significant impact on easing home prices and curbing investor demand, but it also increases the cost of allocation efficiency and allows a small number of homebuyers to enter the market. May prevent you from doing so. “

The Reserve Bank also raised the possibility of distinguishing caps by group of borrowers.

“For example, you can set the DTI cap to 7 for homeowners and 6 for investors, and combine the DTI cap with the speed limit (which can be distinguished by the borrower group) for those who the bank decides. Credits can be allocated. As a better high DTI borrower. These detailed design questions need further consideration and consultation as we proceed with the implementation of DTI limits. “

The central bank also hinted that LVR-style speed limits could be used to give flexibility to first-time homebuyers.

“You can also combine the DTI cap with a speed limit (which can be distinguished by a group of borrowers) to allow the bank to allocate credits to those who it considers to be better high DTI borrowers. The design question is as follows:
Further consideration and consultation should be required if you continue to implement the DTI limit. “

tag: DTI lending RBNZ Reserve bank

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What do DTI limits look like?

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