Mortgage lending rules will be tightened after the government approves the reserve bank to tighten the loan-to-value ratio and introduce a debt-to-earning ratio.

Reserve Bank of New Zealand
Photo: RNZ / Alexander Robertson

In a statement, Treasury Minister Grant Robertson said the central bank would begin talks to reduce bank low-deposit loans from the current 20 percent to less than 10 percent of total loans. The bill will come into effect on October 1.

The government has also granted RBNZ approval for debt-to-income ratios or interest rate floors to ensure that borrowers can afford to service mortgages.

“This change gives reserve banks the flexibility to respond to new financial stability risks and deploy the right tools as needed,” Robertson said.

He said talks began in October and that the debt-to-income ratio is designed to minimize the negative impact on first-time homebuyers.

Mortgage broker and CEO of Squirrel John Bolton said reducing the amount of loans to low-deposit borrowers would affect the first homebuyers.

“Many of the first homebuyers we see have deposits less than 20%, which will tighten it a bit, reserve banks see it as a little dangerous space.”

He said introducing debt to income limits could hurt real estate investors in pockets, not the first homebuyers who are usually considering real estate about five times their income. Stated.

“If you start to reach up to 6 people [times your income] When you’re eating baked beans for dinner, it’s really starting to get into that space. The Reserve Bank has signaled about six times that income, saying it won’t have much of an impact on the first homebuyers. “

Continued movement Changes made at the beginning of the year To cool the housing market, which has proven to have little effect on slowing annual 20% growth in home prices.

Reserve Bank of New Zealand Deputy Governor Geoff Bascand said the financial system is strong and needs further restrictions to allow borrowers to cope with economic and financial pressures such as rising interest rates.

“We have already adjusted the loan-to-value ratio (LVR) limits to partially manage this risk, but we have not seen sufficient reductions in risky loans.”

“If home prices fall, some buyers may face the potential for negative equity, which means that the value of real estate is below the outstanding mortgage balance.” Baskand said.

The RBNZ will discuss interest rate floors with DTI starting in October, and the process will take at least three months.

Robertson said that the purpose of the old and new moves was Improve Affordability for First Home Buyers.. The previous move was aimed at real estate investors.

Robertson also said in a memorandum that banks needed to avoid adverse effects on the first homebuyers as much as possible.

“We believe that this agreed wording sets clear public expectations while maintaining the operational independence of the Reserve Bank. How to limit it in light of this condition,” said Robertson. It’s up to the reserve bank to introduce it. “

Nick Goodall, head of research at CoreLogic, said the outlook for new lending restrictions was shocking because it could hurt homebuyers.

“Few buyers can enter the market with less than 20% deposits. [and that] There should be downward pressure as it means less demand [on house prices].. “

He said it would have the greatest impact on the first homebuyers, as they often found it difficult to save enough for deposits.

Mr Gdor said he did not expect the debt-to-income ratio to come into effect this year.