The framework sets the technical specifications that banks need to comply with if a DTI tool is activated.
When implemented, DTI restrictions on residential mortgage lending set limits on the amount of debt borrowers can take on relative to their income.
By linking credit availability to income growth, DTI restrictions complement other tools the Reserve Bank (RBNZ) uses to support financial stability, including loan-to-value ratio (LVR) restrictions on residential mortgage lending.
Matters clarified by the RBNZ include the treatment of personal debt in DTI calculations, the calculation of business income, and the treatment of complex lending situations.
RBNZ director of prudential policy Kate Le Quesne says this supports financial stability by limiting higher-risk mortgage lending, thus reducing the likelihood of a future housing-related financial crisis.
Publication of the framework does not immediately activate DTI restrictions or set a calibration for them.
Le Quesne says instead, it provides banks with clarity in terms of the definitions of debt and income and future data reporting requirements.
It also provides them with a timeframe for making any changes to their internal systems and processes to be able to comply with a possible DTI restriction in future.
The RBNZ decided to add DTIs to its macroprudential policy toolkit in April 2022 and a public consultation on draft of the DTI framework was held in November 2022.
Le Quesne says stakeholders were generally supportive of the proposed design of the DTI framework and agreed with the RBNZ overall approach to keep the framework simple and clear.
The finalised DTI framework is being released alongside a regulatory impact statement, non-technical summary, and a summary of submissions document that contains the RBNZ’s responses to the key issues raised in the consultation.
Banks will be given 12 months to prepare their systems for possible implementation of DTI restrictions. The earliest date the RBNZ would introduce DTIs is likely to be March next year.
