Lucy Kramer
WELLINGTON (Reuters) – New Zealand's central bank on Tuesday placed limits on the amount mortgage lenders can lend to borrowers who want to borrow too much relative to their income.
The new rules come as policymakers seek to reduce the risk of defaults in New Zealand's housing market, where prices are fluctuating rapidly.
Banks will have to comply with the new rules from July 1 and the limits will apply to new lending on residential properties to both home occupants and investors, the bank said in a statement.
At the same time, the Reserve Bank of New Zealand (RBNZ) will ease loan-to-value ratio (LVR) rules that limit the amount of low-deposit lending.
“Having both debt-to-income (DTI) and LVR requirements allows us to better focus the risks that the regulations address while maintaining the same or better levels of resilience across the financial system,” RBNZ Deputy Governor Christian Hawkesby said.
Westpac economists said the move was well-advised to markets and would have no impact on monetary policy.
However, Westpac said significant differences in house prices and income levels across regions could lead to changes in investor behaviour.
“Because housing affordability relative to income varies widely across the country, mandating DTI in expensive housing areas could incentivize investors in high-income areas to invest in lower-priced areas,” the report said.
The new DTI setting will allow banks to offer 20% of their loan portfolio to home-dwelling borrowers with debt-to-income ratios above six.
(Reporting by Renju Jose in Sydney and Lucy Kramer in Wellington; Editing by Alistair Bell and Sam Holmes)
