The news from the New Zealand Herald on January 22nd, 2024, regarding the “Reserve Bank proposes Introducing Debt-to-Income (DTI) Mortgage Restrictions,” signifies a potential shift in mortgage lending regulations that could impact borrowers across New Zealand.
The Debt-to-Income (DTI) ratio is a measure of the percentage of your gross monthly income used to pay your monthly debt or mortgage obligations. It serves as part of the lending assessment process.
First introduced in 2021 as part of efforts to cool down the heated housing market, DTI restrictions on residential mortgage lending aim to set limits on the amount of debt borrowers can take on relative to their income. If implemented, these restrictions would affect both owner-occupiers and property investors. Typically, the proposed limits suggest that borrowers could take on debt worth no more than six times their annual income, with investors facing stricter limits.
While DTI restrictions could help stabilize the housing market and reduce inflation, they may also lead to reduced borrowing capacity for individuals seeking mortgages. Currently, banks utilize their own serviceability calculators to determine maximum lending amounts, with some incorporating DTI calculations into their assessments. However, DTI ratios have not yet become a mandatory requirement.
For example, if your annual income is $100,000, the maximum lending amount you may be eligible for could be $600,000. However, certain banks may still offer higher lending amounts based on their calculations.
If you are concerned about how DTI may impact your investment portfolio or owner-occupied mortgage, it is advisable to consult with a trusted financial advisor or banker promptly. Additionally, exploring options such as investing in new build properties, which may be exempt from the regulation (subject to lender criteria), could be considered.
In summary, for anyone considering a new mortgage—whether for a home, investment property, business, or seeking to optimize current mortgage costs through restructuring—it is recommended to seek advice sooner rather than later to avoid any last-minute surprises before the regulations take effect. Feel free to reach out to us for a discussion over coffee.
Disclaimer: We recommend that you seek personalized professional advice from your trusted adviser before taking any action, as each applicant’s situation can vary. The above content is only general commentary.
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