RBNZ obsession with DTIs unwarranted

[donna]

Why is the RBNZ obsessed with DTIs?

According to Interest.co.nz's: "Mortlock is a consultant on economic and financial policy, drawing on many years of experience as former senior staffer at the RBNZ and APRA" - it's not warranted as a means for maintaining financial stability as the banks already have substantial capital buffers:

Stress tests of banks conducted by the RBNZ have repeatedly shown that banks are resilient to even severe house price shocks and sharp increases in the rate of unemployment.

The RBNZ has not demonstrated the case for using DTI or LVR restrictions on the grounds of financial stability.

It's the RBNZ attempting to manage house price inflation - which is not their remit.

Mortock goes on to say:

The RBNZ DTI proposal is an example of overly prescriptive and poorly costed regulation. It will create inefficient distortions to bank lending and will prevent many people who could adequately service a loan from accessing housing finance due to arbitrary cut-off limits. It disregards the many factors which a bank will take into account when assessing the capacity of a borrower’s credit worthiness.

And this sums it up the overreach perfectly......

Micro-management of bank lending decisions should have no place in a well-functioning market economy and financial system. Indeed, given that the RBNZ demonstrably lacks people with banking expertise and experience (including, remarkably, its senior management team), it is rather disturbing that they see themselves as being better qualified than bankers to assess the credit worthiness of borrowers.

There are cheaper and more efficient options including:

Alternative options (such as recalibrating bank capital ratio risk weights) would provide more cost-effective and less distortionary means of meeting financial stability objectives.

Geof is suggesting Finance Minister Nicola Willis orders an independent review of the DTI policy.

source

How would a DTI affect the property market?

Depends on the ratio - if it is 7x income - it won't have much affect. 6 x will impact borrowing and lower than that will have a much greater impact.

See this extensive blog post (link below) on the impact of DTIs with a calculator and comparisons between FHB, Investor and other owners.

Earliest the DTIs will come in is March 2024.

regards,

Donna

[Sanya]

Why is the RBNZ obsessed with DTIs?

They want to stop or at least mitigate the boom and bust property cycle like we recently been through.

When you print loads of money and trust me - they will want to print more - an inevitable consequence of that is inflated asset prices.

DTI can used like a valve to curtail lending. If people can't borrow it limits house price inflation.

[brokerman]

DTI's are another CCCFA mess in the making. There is not now, or have ever been, reckless or overextending of lending by mortgage providers in NZ. There are already checks and balances in place, including Responsible Lending Code and what's left of CCCFA. Had DTI's been in place in 2020/21 they would have been postponed in the same way RBNZ postponed LVR's and the drove interest rates through the floor. Rates now are just above average, they are not high. What is unusual is the rate of change in the last 24 months, from record unsustainable lows to where we are now. Despite that the number of mortgages over 3 months in arrears is 0.4% of the total. Put into perspective at the height of the GFC it was 1.4% so a long way off of that. Are DTI's warranted? Absolutely not.

[Jeffa]

DTI can used like a valve to curtail lending. If people can't borrow it limits house price inflation.

This is wrong, house price inflation is a result of money expansion or lower interest rates,

As the local broker explains, banks have had DTIs for years now so nothing is likely to change

Apart from less rental properties available pushing rents higher squeezing the middle class further and wealth transferred to those who actually own land and its assets.

New builds being exempt from DTIs has always been the case because of short term lending? Please correct me if I’m wrong on this Mr Broker

The problem with new builds is we are already at capacity with our building industry,

Immigration is going is going nuts , we are already short tens of thousands of homes some estimates 50,000 + because data is always delayed or used in the rear vision mirror never forward looking

All DTIs is going to do is make the rich richer.

[Sanya]

This is wrong, house price inflation is a result of money expansion or lower interest rates,

As the local broker explains, banks have had DTIs for years now so nothing is likely to change

Get a new broker......

The lending limits imposed by DTI's will have no immediate effect but will dampen housing market activity in the longer term.

By exactly how much will depend on the policy settings.

Its a valve. As interest rates go down watch RBNZ counteract with tighter lending restrictions.



What's grating is that I don't know of any other country that applies DTI to investor loans.

Its silly.

The DTI measure assumes that when investors purchase new properties, their living expenses increase – but that doesn't make sense.



The consequence? DTI's for investors >>> less rental properties >>> higher rents.

[Jeffa]

The consequence? DTI's for investors >>> less rental properties >>> higher rents.

Exactly

Higher rents better yields

Higher rents forces renter’s into buyers

My portfolio is up 6% in 2023 … because of FHBs

Have you ever gone up against an FHB? They always over pay

DTIs won’t change a thing to house prices

Higher wages

Lower interest rates

= Higher house prices now and longer term

When has socialism policies by central banks actually worked? Markets decide house values not some ginga in Wellington.

[McDuck]

I know they all went to fancy economics schools and have lots for equations and data at their fingertips... but seriously?
I can only conclude A: that they have a different definition of resilience in mind. And a very specific progression of events in mind.
Or else B: they are flat out telling porkies and they are doing it for another reason, and this is their "trust me bro its for your own good" cover story. Probably B.
Of course the is always C: But that's unthinkable, :That they are complete morons.

[Engineer]

If Don Corleone was in charge of the reserve bank, he'd bring in DTI's.
A protection racket for the banks.

Good for property owners, Less rentals = higher rents = more meatballs and pasta.

Everyone else including someone high up in the one of the banks I spoke to, thinks its BS.
Political interference where it doesn't belong.

[Jeffa]

https://youtu.be/KkFv368SUDo?si=NJsWaHFIbSzq6BP-

[donna]

^^ just what we thought - no lasting negative impact on house price rises.

Single digits percentage will be impacted with DTIs.

[Engineer]

As usual, new policy’s are well meaning and dressed up to solve a perceived problem. Sometimes It’s what they morph into that’s the issue and the stupidity of the people involved.
CCCFA is a disaster
Bright line test. Introduced for 2 years, extended to 10. Ridiculous
LVRs extended to 35 percent deposit for investors. It’s a contract between the lender and the borrower. Not the lender borrower and Adrian O.
No cause terminations. Nightmare.
The less power the government or reserve bank has the less damage they can do.
We don’t need DTIs.
Bugger off Adrian.

[Jeffa]

Easier for established landlords to get around DTIs, will take longer for new ones but they will get there so long as they buy and hold

If DTIs are exempt for new builds and you want to grow your portfolio further, you need to sell existing portfolio,, lower debt and invest in multiple units/apartments eg sell 2 houses, buy five new build units with higher yields and 35% deposit, immigration likely to keep ticking over.

You don't need to sit through hours of a boring Steve goodey seminar to tell you this.

King Jeffa can pass this advice of on to others out of love x

[Frezzinghot]

Easier for established landlords to get around DTIs, will take longer for new ones but they will get there so long as they buy and hold

If DTIs are exempt for new builds and you want to grow your portfolio further, you need to sell existing portfolio,, lower debt and invest in multiple units/apartments eg sell 2 houses, buy five new build units with higher yields and 35% deposit, immigration likely to keep ticking over.

You don't need to sit through hours of a boring Steve goodey seminar to tell you this.

King Jeffa can pass this advice of on to others out of love x

Some decent advice right there, but i see the gem in holding as long as possible to give you options to buy into new builds.

[Chris W]

Opes Partners on DTI.

https://youtu.be/EkUr_BODmCs

[Chris W]

From GRA

https://www.gra.co.nz/articles-by-matthew-gilligan/impact-of-debt-to-income-restrictions