LOAN LOOSENING

New limits on how much you can borrow for a mortgage have just been confirmed by the Reserve Bank. 

From July 1, new Debt to Income ratios (DTIs) will mean most owner occupiers will be restricted to borrowing six times their gross income. For landlords the limit will be seven times. 

Statistics NZ calculates the average gross household income in 2023 as just over $126,000.  

That means a household earning that amount would be able to borrow a maximum of $756,000 less any existing debt such as credit cards.  

The new DTIs do not apply to 100 percent of all new loans. Banks will be able to lend higher amounts to a maximum of 20 percent of new owner occupier and investor borrowers. 

At the same time, the Reserve Bank is also loosening its restrictions on how much new low-deposit lending a bank can do. These are called Loan- to-Value (LVR) ratio restrictions.  

Currently only 15 percent of a bank's loans can be made to owner occupiers with less than a 20 percent deposit. From July this will be eased to 20 percent of a bank's total loans.

For investors a bank was able to loan 5 percent of its loan book to those with less than 35 percent equity in a property. That will decrease to 30 percent. 

Deputy Governor Christian Hawkesby says DTIs and LVRs are complementary. 

"LVRs target the impact of defaults by reducing the amount of potential losses in the event of a housing downturn. While DTIs reduce the probability of default by targeting the ability of borrowers to continue to repay debt. Both act as guardrails reducing the build-up of high-risk lending in the system."

The Reserve Bank said all banks will have an initial six-month window to calculate whether their current lending is within the DTI restrictions to ensure a smooth introduction of the DTI rules.