Debt to Income Loan Limits

[d2ba]

Great article here--i don't normally agree with the standard but this is a interesting including the comments. Worth a look

https://thestandard.org.nz/debt-to-income-loan-limits/

[flyernzl]

They have DTI limits in the UK.

They only apply to owner-occupied housing. Property investors are exempt.

[Wellington Broker]

In the UK mortgage interest isn't tax deductible either. I don't think there's any reason to assume investors would be excluded here, they've been the primary target of previous RBNZ measures. The RBNZ discussion paper also talks about investors throughout and references overseas experiences where areas with a higher proportion of investor lending experience bigger busts in downturns - if you need to sell one property due to a downturn would you sell your house or one of your five investments? Page 23 specifically states that the same rules would apply to owner-occupiers and investors.

As for the article and comments on The Standard? They're a little ridiculous. Banks don't lend to people on 100k who would have to spend 60%-70% of their income on loan repayments. The Big Short comparisons? In 2005 one in three loans in the US was a subprime loan and their biggest growth area was manufactured housing - not even properties, just mobile homes!

[flyernzl]

The RBNZ discussion paper also talks about investors throughout and references overseas experiences where areas with a higher proportion of investor lending experience bigger busts in downturns

The RBNZ discussion paper is wrong.

I looked closely at the property crash in Ireland when I was there.
Almost exclusively, the Irish property crash involved developers, speculators and the banks who were financing them. Ordinary buy-and-hold landlords were entirely unaffected.

It just suits the Reverse Bank to misrepresent the situation in order to pursue their preset agenda.

[Don't believe the Hype]

The RBNZ discussion paper is wrong.

I looked closely at the property crash in Ireland when I was there.
Almost exclusively, the Irish property crash involved developers, speculators and the banks who were financing them. Ordinary buy-and-hold landlords were entirely unaffected.

It just suits the Reverse Bank to misrepresent the situation in order to pursue their preset agenda.

you're right flyer - but that doesn't fit the narrative. The interpretation of what happened is bent by the bias...

It is very common and a driver of many business or policy failures for people to start with an outcome and then go and find the data to support their 'hypothesis'.

[Nick G]

Investors have 40% LVRs and servicing rules where we are assessed at 7% interest rates yadda yadda. Investor lending has fallen by a lot already as folks adjust. Is the goal here to keep FHBs as renters?

[Wellington Broker]

The discussion paper also references the United States when talking about investors with comparisons between states in a very similar market. There are differences in how hard they boom/bust based on a few different factors (non-recourse loans is a biggie) but that does include the proportion of investors

Some of the other analysis is quite flawed - they do state that it will likely mean a reduction in investment properties but shouldn't impact on rents:

The policy should also not have significant impacts on rents. As discussed above, aDTI limit would be likely to reduce the number of rental properties over time (sincelandlords are significantly more likely to have high DTI loans). However, eachadditional property purchased by an owner occupier will reduce both the supply ofand demand for rental properties, so the impact on rents should not be significant

This assumes that the same number of people live in your average rental as your average owner-occupied property.

Also would impact on owner-occupiers who have bought and are unable to move house as they can't access finance at the same level with the restriction in credit. Not going to create a great situation for people if they have changes in their life such as a growing family or separation and need to sell and rent in a market where rents have increased due to lack of supply.

[Nick G]

I don't understand the exemption for new builds here.

When the narrative is to save buyers from themselves how is a higher DTI on a new build going to achieve that? It has to be a political concession by the RBNZ.

[donna]

We put a blog post up here - interestingly DTIs moving towards 4.5 was big news in the UK recently. In AKL it must be well over 6 and as high as 9. It's no wonder RBNZ say every year probably 11,000 (2000 home buyers, 9000 investors) won't qualify for a Bank mortgage high enough. Agree I find the new builds exemption confusing and it will push up the prices of new builds as more compete in that market.

cheers,

Donna

[Bob Kane]

However, each additional property purchased by an owner occupier will reduce both the supply of and demand for rental properties, so the impact on rents should not be significant

I've heard that said many times but I'm not sure it's true.
I think the claim is when an investor sells a rental to a home owner, there will be no change in demand or supply - it's a zero-sum game.
I think this assumes the rental is purchased by a tenant.
I don't think many tenants purchase homes.
I think that if DTI measures force some investors to sell, then those houses will be purchased by existing home owners which will reduce the rental pool. And rents will increase.

[Viking]

So what does this fellow do then?

http://newsie.co.nz/news/38968-edgecumbe-retirees-face-new-mortgage-worries.html

An Edgecumbe resident forced to sell his home to the Bay of Plenty council is worried he won't be able to buy another home with the proceeds.
Twelve Edgecumbe homeowners have to sell their properties to make way for a new stop bank.
The council will buy the land to put a new stopbank along the river banks. It said the 12 properties affected were already uninhabitable.
For 30 years, Reuben Cohen has owned his home on College Road, near where the Rangitāiki river stopbank breached.
He and his wife, both pensioners, were turfed out on 6 April by flooding, and their home was red-stickered.
Now, they are unlikely to ever return.
The Public Works Act permits the forced sale of land and says the price offered could not put the owner in a better or worse-off position.
The provision could be a problem however, when it came to the value of Edgecumbe property, Mr Cohen said.
"We're living in a town that has cheaper housing than other places."
He said they would have to get a mortgage to move anywhere more expensive - and their last one took 30 years to pay off.
"We should be able to have the mindset that we had before, and that is not guaranteed."
- See more at: http://newsie.co.nz/news/38968-edgec....cyWCwIbF.dpuf

[Beano]

With a unihabitable house with no resale value i would say he would very be happy to get a "buy out"

[artemis]

I've heard that said many times but I'm not sure it's true.
I think the claim is when an investor sells a rental to a home owner, there will be no change in demand or supply - it's a zero-sum game.
I think this assumes the rental is purchased by a tenant.
I don't think many tenants purchase homes.
I think that if DTI measures force some investors to sell, then those houses will be purchased by existing home owners which will reduce the rental pool. And rents will increase.

It also assumes that the number of occupants remains the same. Which may be the case, but also may not be. For example, a person flatting with others saves up and buys an apartment. The other flatties carry on.

[flyernzl]

Many owner-occupiers live in homes that have unused space - my mother lived in a 3brm 1920s bungalow alone for 30 years. This house, if rented, could have comfortably housed six people. My wife and I live in what was built as a 3brm home but now houses just the two of us.

Most rentals however seem to be occupied to capacity.

[Nick G]

Don't tell Gareth Morgan that...