LVR restrictors back 1 March 2021

[McDuck]

Ok.
Figured it out.
Its not a very good tool.

It's pretty open to abuse.

The main weakness it that it takes a momentary snapshot of borrower's behavior.
And since a Mortgage is a very long term relationship, you need to vet the applicant's long term behavior.

So a LVR wins out on that front.

Savings are a measure of what you have been doing, and are capable of.
Cashflow is just what you are doing that moment.

Anyone can behave for a moment.

[McDuck]

Ok, I've figured out a way in..

What is a DTI.

DTI is short for DEBT to INCOME RATIO.
The formula is DTI = TOTAL MONTHLY DEBT PAYMENTS / GROSS MONTHLY INCOME.
36% is a normal DTI.

Now, If the average AUCKLAND INCOME IS 66k, ...

Practically for a young family, with no Student debt, or car loans or other...( very unlikely)..

DTI = TOTAL MONTHLY DEBT PAYMENTS / 66K.
(We need children, so one of the two is studying or looking after sprogs).

This is where it gets Nasty.
INTEREST RATES ARE A VARIABLE..

more thinks..

[McDuck]

sorry . thats lazy on my part.

I should figure it out myself.

ha. the old brain has shut down after the gym ATM, it always does that. need a new one.. oh well.

so.. LVR is LOAN to VALUE.
What it really means is the total VALUE of the property split into two parts.
Part one is the DEPOSIT,
Part two is the LOAN.
usually its a 30/70 split.

so, practically then, a 1.2 million Auckland property would require a young couple save 30% of 1.2 million.
Practically then, It takes over three hundred thousand dollars ($300,000) to put your head in the noose.
Years and years of saving for a normal family.

If houses were a more reasonable 500 K say, that would mean only half the deposit would be required.

Now.

What is a DTI.

DTI is short for DEBT to INCOME RATIO.
The formula is DTI = TOTAL MONTHLY DEBT PAYMENTS / GROSS MONTHLY INCOME.
36% is a normal DTI.

This is a bit intertwined from here.
I'm going to have to think about it more.

[McDuck]

DTI - it's in the news again - I wouldn't be writing this off.
Donna

How is DTI different to LVR?

[Jeffa]

Labour said the same in opposition.

Sometimes I believe we should train monkeys to work in the beehive.... same productivity less taxes.

[donna]

So National is going for it and as Judith says for her party the 2023 election campaign has started. Judith Collins wants to know what the RBNZ is doing about rising house prices - and it's rattling the PM.

Plus - DTI - it's in the news again - I wouldn't be writing this off.



cheers,

Donna

[McDuck]

What's been missing from the RBNZ's toolkit is a DTI (debt to income) measure...
This would be a big development and would take a lot of buyers out of the market and halt rising sales prices.

cheers,

Donna

This is a very interesting idea.
So how would it work?
And how would it differ from a LVR.

Both tools ( gates ), SORT and RESTRICT certain (potential) money borrowers.

The LVR sorts people by how well they saved their income.
Socially useful people work, earn, wisely spend and save.
The sorting failure being,
A: Passive (paper wealth) house price inflation, and
B: Family loans.

The DTI attempts to do the same thing, but is more effective?
How does it work?

Another sorting tool like.

[McDuck]

..

The only realistic way to slow house prices down is increase interest rates which is going to hurt the economy because of so much debt flowing around our economy.

...

Hey, you're back!

You made a little mistake.
It's not "THE ECONOMY", It's "THE ECONOMIES".
There are several distinct parts.
You could have the same amount of economic activity, just in different economic areas.

Also, as a matter of form, increasing rates is one of MANY OPTIONS to steer the flow of money.

[Jeffa]

It's politically hard too bring in debt to income ratios.
For first time home buyers in Auckland with an average house price at 1 million,DTIs lock a large number of voters out of the market.

The only realistic way to slow house prices down is increase interest rates which is going to hurt the economy because of so much debt flowing around our economy.

You could raise LVRS 50% for investors but that wouldn't concern me as I have the ability to pay cash up to 1mil for a property/s.. and I already know what's going to happen to rents when there is less of you..my competition.

The issue I have with economist is they are saying what they want instead of what we need to do.Most economist enjoy there media attention instead of being more informitive and educating the younger generation.

Firstly stop filling people with hope that house prices will fall because central government will fix it.. they don't and won't.

There should be tax incentives for alternative investment like shares.Id move a lot of my capital out of the housing market if I had more tax breaks.

5 year's ago I remember decreasing rents to get tenants in, the free market does work.. government needs to stay away from the rental market they create more harm than good.

History shows the rich have always become richer.. there's so many ways to wealth besides property.
Look at the wealthiest people in the world,there not property investors and they didn't get there by investing in old State house's in Cannons Creek and Otara.

[donna]

What's been missing from the RBNZ's toolkit is a DTI (debt to income) measure - and supposedly getting it is part of the 2nd phase of the Reserve Bank Act Review according to interest.co.nz


Clearly, this is the tool that the RBNZ want and they can use to (in the words of interest.co.nz) to put in speedbumps to lower the percentage of households with mortgage repayments over a third of their monthly income.

This would be a big development and would take a lot of buyers out of the market and halt rising sales prices.

cheers,

Donna

[McDuck]

I should clarify.

That's not 1 in five people
Or even 1 in 5 homeowners.
Just 1 in 5 of very RECENT HOUSE MARKET PLAYERS, and mainly due to the RESERVE BANK LVR removal.

If the two smaller POLITICAL PARTIES want to get some real control in the next election, they could set policy for the next generation.
Directing their attention to the needs of the younger people.
Those trying to save for houses, to grow a family, while trying to earn and educate themselves you know doing things the right way.

They will also get the votes of the GRANDPARENTS and PARENTS, now looking after the future of their children and grandchildren.
That's a nice powerful chunk of votes.

At the moment, the interests of the OLD GUARD are set against the young.
They need a hero.

[McDuck]

Anyone know what our average DSR is at the moment? I know would vary a lot between AKL and rest of NZ.

cheers

Donna

That sort of information would be with the individual banks.
The RESERVE BANK only gives a general picture.

My general impression is that about 1 in 5 people are way out on the edge.

(The data is organized so the if you are less than three quarters of the way to the cliff, you are lumped in with " everyone else").

And you know how my little brain hates those simplistic clunky data sets, (it prefers to watch the three dimensional waves form, and suppress, and reflect).
Oh well, no fun for me.!

What exactly was it you were trying to figure out?

The only other thing I can tell you, is that compared to a year ago, everything is twice as big.
or as one particular pop icon likes to put it...

[donna]

Anyone know what our average DSR is at the moment? I know would vary a lot between AKL and rest of NZ.

cheers

Donna

[McDuck]

ANZ also imposing 70%

It's going to be difficult for the RESERVE BANK STAFF to shift the blame on to the TRADING BANKS now.
Nice try though.

I see that the RESERVE BANK DEPUTY GOVENOR just doubled down on the claim that. "IT's NOT OUR JOB".
Close ranks boys?

Can the MINUTES TO THE L.V.R. REMOVAL MEETING be obtained, through the INFORMATION ACT?
Now there's a nice job for a bored reporter.
I'll confess, The group dynamic would be interesting to see.

[cube]

ANZ also imposing 70%