DTIs: what do advisers think?
Mortgage advisers are unconvinced that the Reserve Bank's plan to introduce debt-to-income ratios will reduce risk and fix the housing market.
Friday, November 27th 2020
The RBNZ governor Adrian Orr this week confirmed the central bank wants to introduce controversial debt-to-income ratios to curb excessive lending, and reduce the risks of going into default if they lose income.
Orr said the Reserve Bank would "dust off" plans on DTIs, after weighing them up seriously in the past.
It comes amid rising pressure on the Reserve Bank to try and cool the housing market, after lowering interest rates, introducing a funding for lending programme, and scrapping LVRs in May.
Advisers remain opposed to DTIs. One told TMM Online they would be "just another exercise for the broker to undertake for the customer, lender and the Reserve Bank".
Mortgage People's Martin Thomas said DTIs would be difficult to implement in Auckland.
He said they were "probably impractical in Auckland with median house prices over $1,000,000. If you're borrowing $800,000 it assumes an income of $133,000 – that will cut most FHBs out of the market, if the banks cap DTI at 6 times."
Andy Phillipson of The Mortgage Shop said debt servicing ratios, used years ago, were "far more accurate", and "far more reliable".
He isn't a fan of DTIs as they "can easily come to grief as soon as [the] borrower goes to a finance company and takes on more debt."
"In my role now, I am doing a lot of 'financial repairs' for clients. Despite fighting hard to get a home loan for them, it is not uncommon for a borrower to return 6-12 months later with $40-$80k of new outside debt that I then have to consolidate or tidy up," he said.
"So in my view, debt-to-income ratio limits on mortgage lending is simply grandstanding and trying to back out of the bad situation that the Reserve Bank has created," Phillipson added.
Ian Webb of NewBuild Residential Construction Lending said DTIs could be a better tool than LVRs, but should not be implemented alongside LVRs.
"I don't agree there should be both LVR and DSR/DTI restrictions, unless they completely exempt regulation over a person's primary residence, and also residential construction for any purpose, as shortage of supply is the main reason for the problem in the first instance."
He called on the government and regulators to "free up supply of land, and speed up consents, then any restrictions on consumers would not be required at all. We should stop dampening and restricting demand and instead be focussed on the supply side to resolve this issue."
Up Next First home buyers taking risks
by Amused 27 November 2020 2:47 pm
Again if memory serves me correctly Parliament themselves have to approve the introduction of DTI Ratios and this would be political suicide for any Government. Something as routine as topping up your home loan to make your property warmer and more energy efficient could become overnight difficult.
The banks already stress test new mortgages at rates significantly higher than those currently available and impose additional UMI buffers where an applicant doesn't have a full 20% deposit. DTI ratios will just end up hurting first home buyers potentially locking many out from ever purchasing a home.
If they are introduced DTI Ratios should only be applied to investment loans to level the playing field.