At a recent presentation I gave to a group of property investors, the part that generated by far and away the most discussion and, dare I say, surprise/angst was around restrictions on debt-to-income (DTI) ratios – which seem almost certain to be imposed from about March next year.
As things stand:
- We don’t know what the DTI limits will be – a cap of seven regardless of borrower type? Exemptions for new-builds? A speed limit system as per current LVR rules?
- We do know though, that the RBNZ already has permission to impose them
- Banks will look at ‘all’ income and debt in calculating the DTI – so this covers existing loans as well as the potential new mortgage that’s being assessed
- Given their tendency for higher DTIs, the caps will tend to hamper investors more than other buyer groups, although the LVR rules also seem likely to be loosened at the same time
- To be fair, this may be cold comfort – after all, the flip side of an investor putting in a smaller deposit is simply a larger mortgage and higher DTI!
- The rules would not apply to non-bank lenders
What about an example? At a DTI of seven, for somebody with an income of $100,000 and existing debt levels of, say, $350,000, in basic terms, the rules would allow for an extra $350,000 of new debt (making total debt of $700,000). Of course, for an investor looking at another purchase, the rental stream on that extra property would also bump up the income side of the equation and allow for some additional debt – albeit the banks themselves could still decide to apply a haircut.
However, that simple example does help to illustrate the strong restraint...
