RBNZ announces DTI changes coming sooner than expected
The Reserve Bank of New Zealand (RBNZ) announced yesterday that they have activated the Debt-to-Income (DTI) restrictions and these will come into play a bit sooner than the banks and most Kiwi’s were expecting. The new DTI’s will officially come into force as of July 1st 2024.
So what does this mean? DTI restrictions mean that banks are limited as to how much high-value lending they can offer. The new rules mean that 80% of borrowing is limited to being 6x the borrowers income, and only 20% of lending can be outside of this limit.
For investors the new rules mean 80% of borrowing is limited to being 7x a borrowers income, and only 20% of lending can sit outside of this limit
The bottom line today is don’t panic. It will have minimal immediate impact as current interest rates and the stress rates banks use, already trump the DTI requirements stated. This means the borrower would fail the servicing test before being affected by these DTI’s. This is probably going to have more of an impact in the next 18-24 months depending on how quickly interest rates drop. It essentially means this is in play to manage for the next cycle.
The other two key points to consider are:
- >80% LVR pre-approvals for owner occupied will probably become the norm again given banks can now go up to 20% of all of their lending in this space - this is great news!
- Investor lending will remain at 65% for existing properties. The 70% LVR stated is essentially an increase in the banks failsafe for errors and property value drops leaving the banks book over exposed in this space.
If you are not working with us already, now is the time. Get in touch with us today, call our Queenstown mortgage advisors on 03 441 1307 or click here to begin your journey with us online.