We all know what the reintroduction of loan to value ratio (LVR) rules has done for investor demand in the residential property market – after a peak market share of 29% of property purchases in the first quarter of this year, the requirement for a 40% deposit from 1st May has since contributed to mortgaged investors’ presence sliding away to about 25% now.
Of course, the phased removal of interest deductibility (except for purchases of new-builds) has been a factor too, as has the simple economics of falling gross rental yields versus steadily rising mortgage interest rates. Indeed, the previous situation where yields were actually higher than mortgage rates has turned around pretty sharply in the past few months.
On top of all of that, the latest factor that’s arisen more prominently in recent times has been potential caps on debt to income ratios. So what do we know so far? First, they’re not likely to be officially in play from the Reserve Bank until about the middle of next year, although the consultation is due to start by the end of November. Of course, in reality, some banks already use DTIs, e.g. the BNZ with a cap of six for loans via broker channels.
That raises the second point, of where might the levels be set? Reading between the lines of the material that the Reserve Bank has published so far, it could be something like six for investors and seven for owner-occupiers. It’s worth noting that this could be pretty restrictive – in September, 53% of investor loans (by value) had a DTI >6, and in Auckland, it was 62%. Over the past year, there have been about 16,000 investor loans across NZ with a DTI >6.
A really key point about DTIs...
