The Reserve Bank of New Zealand (RBNZ) has implemented new regulations aimed at reducing default risk in the country’s housing market. Starting from July 1, lenders will face limits on the amount of housing finance they can provide to borrowers with high levels of debt relative to their incomes. These restrictions will apply to new lending for residential properties, including both owner-occupiers and investors. At the same time, the RBNZ will ease loan-to-value ratio (LVR) restrictions, allowing for more low deposit lending. The move comes amidst significant price fluctuations in the New Zealand housing market.
“The implementation of both the debt to income (DTI) and loan-to-value ratio (LVR) restrictions enables us to effectively address the risks they were designed for, while maintaining or enhancing the overall resilience of the financial system,” stated Christian Hawkesby, the deputy governor of the Reserve Bank of New Zealand (RBNZ).
According to economists at Westpac, the market was well prepared for this move, and it does not have any implications for monetary policy.
However, Westpac economists pointed out that the significant variations in regional house prices relative to income could result in changes in investor behavior.
“As the levels of house prices relative to income vary greatly across the country, the implementation of DTIs in high-priced regions may encourage investors from regions with higher incomes to invest in areas with lower house prices,” the economists noted.
Under the new DTI settings, banks are allowed to have up to 20% of their loan portfolios allocated to owner-occupier borrowers with a debt to income ratio exceeding 6.