What DTI limits might look like

The Reserve Bank has added debt-to-income limits to its regulatory toolkit, and a recent memo from the central bank reveals the potential settings for the new rules if they come into effect.

The RBNZ has added DTIs to its policy armoury, though there are no firm plans to introduce DTI rules, with the issue set to go under consultation.

However, guidance shared between the RBNZ and finance ministry last month reveals the potential level for DTI settings.

In its May correspondence with the Government, the central bank said: "Our analysis suggests that in the current market a DTI cap of seven would have minimal impacts on first-home buyers while deterring some purchases by investors."

The RBNZ warned a cap as low as six could hit first home buyers.

"A lower DTI cap of six would be expected to have more impact on moderating house prices and dampening investor demand, but would also have higher allocative efficiency costs and could prevent a small number of first-home buyers from entering the market."

The Reserve Bank also raised the possibility of differentiating caps by borrower group, and hinted that LVR-style speed limits could be used to allow flexibility for first home buyers.

"For example, the DTI cap could be set at seven for owner-occupiers and six for investors. DTI caps could also be combined with a speed limit (which could be differentiated by borrower group), allowing banks to allocate credit to those they judge as better high-DTI borrowers. These detailed design questions would need to be considered further and consulted on if we were to proceed with implementing DTI limits."

The central bank said it would take approximately six months to design and implement DTIs, if they were needed.

However, the Government's housing reforms and successful reintroduction of LVR rules could lessen the need for the additional policy tool. 

"The initial effects of the recent tightening of LVR settings and the Government’s recently announced housing policy changes will become clearer over the coming months. If we consider that further action is required we will determine the appropriate response based on the tools available to us at that time."


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