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Wait on DTIs and interest-only restrictions

Mortgage advisers will have to wait a little longer to discover if and when the Reserve Bank will introduce debt to income ratios and interest-only lending curbs, according to economists.

While the central bank is poised to publish its latest Financial Stability Report tomorrow, economists at ASB predict there will be no firm commitments on DTIs and interest-only lending limits. 

The RBNZ and Minister of Finance have outlined their desire for DTI tools and to limit mortgage lending, while the Reserve Bank, under instruction from Finance Minister Grant Robertson, is reviewing the risks posed by interest-only lending. 

According to ASB chief economist Nick Tuffley, we can expect to hear more on DTIs and interest-only later this month. 

"The FSR will be too soon to announce any concrete progress on these measures, let alone any implementation," he said. "Along related lines, Finance Minister Robertson has also announced that he is establishing a new framework for deciding what type of lending the RBNZ is permitted to restrict."

The FSR is expected to focus on growing risks in the housing market following a year of soaring prices, however. 

ASB said the housing outlook was "up in the air" following the Government's recent tax clampdown on landlords. 

"We’d expect the RBNZ to still be unsure about the impacts on house prices and financial stability," Tuffley said. "The changes are likely to sound the death knell for continued unbridled capital gains and further stretch in house prices relative to incomes and rents."

As the new rules take effect, ASB expects the Reserve Bank to be patient around further sweeping changes to the lending market. 

"But there is also the risk that the tax changes are a little too effective, so the RBNZ want to take the time to see what happens – and has no new tools to use yet anyway."

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