Mortgage lending slows to lower DTI rates

As the Reserve Bank gears up to start public consultation at the beginning of near year on debt-to-income (DTI) levels, its latest quarterly DTI figures show In September, $1.6 billion, or 31.1% of $5.2 billion of new mortgage lending was at a DTI of 5.

This is the lowest share since the data collection began in 2017 and has been declining since the first month of 2021 when the housing market frenzy changed tack. Before that borrowing had been at excessive DTI levels.

For first home buyers (FHB), 29.7% of the value of new mortgages had DTI of 5 in September. This share has fallen from 41.5% in September 2022. A record low share of 28.1% of FHB mortgages had a DTI of 5 in August 2023.

Reserve Bank figures show the shares of new mortgages to each of the other three borrower groups – investors, other owner occupiers with investment collateral and other owner occupiers without investment collateral – with a DTI of 5 were all the lowest since the data collection began.

At the higher level of DTI of 7, the monthly share of new mortgages slumped to 5.2% in September, which is the lowest since the data collection began. This compares with 9.3% in September 2022. The highest share in this series was in January 2021, when 26.5% of new commitments were with a DTI of 7.

Other owner occupiers without investment property collateral and investors recorded their lowest share of new commitments with a DTI of 7 in September. The lowest share for first home buyers also occurred during this quarter, at 1.1% in July.

Average gross income for first home buyers was $152,700 in September, up 4.7% annually from $145,800 in September last year, while the average gross income for other owner occupiers without investment property collateral increased by 9.9% over the same one-year period to $202,500, up from $184,200.

Borrower gross income is the amount a bank is prepared to count in its servicing analysis and can include the income of more than one person.

The quarterly share of lending to first home buyers with a DTI of 5 and a loan-to-value ratio (LVR) of 80% dropped to 8.4% in the third quarter, down from 12.6% in the third quarter of last year. This share was also below the 8.7% share last quarter, despite an easing in LVR restrictions from 1 June.

The share of lending to other owner occupiers without investment property collateral with a DTI of 5 and an LVR of 80% declined annually to 1.7%, down from 2.4% in the third quarter of last year. The share was also 1.7% last quarter.

The Reserve Bank has been coy on if DTIs will be introduced next year. In its most recent Financial Stability Report it says work continues on developing a framework for imposing restrictions on high DTI mortgage lending, which will complement the current LVR policy by focusing on a different dimension of risk.

Banks are developing reporting and management systems so DTI restrictions can practically be implemented by April 2024. We are currently assessing how a DTI tool could be calibrated alongside LVRs and intend to consult publicly on the calibration and implementation of potential DTI settings in early 2024.

If implemented, restrictions would likely take effect from around mid-2024.

However, what the new Government’s reaction to this is unknown, but the Reserve Bank and former finance minister Grant Robertson signed a memorandum of understanding (MOU) that the RBNZ will inform the finance minister and treasury before making any decision on introducing any macroprudential policy instrument.

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