Recently, New Zealand's central bank announced new rules that will limit how much housing finance lenders can provide for borrowers looking to take on high levels of debt relative to their incomes. This decision comes as policymakers aim to reduce default risk in the country's volatile housing market.
Implementation Date for the Rules
According to the Reserve Bank of New Zealand (RBNZ), the new restrictions will go into effect from July 1. These limits will be applicable to new lending for residential properties, whether for owner-occupiers or investors. It is important to note that while these new rules are being introduced, the RBNZ will also be easing loan-to-value ratio (LVR) restrictions.
Rationale Behind the Regulations
Christian Hawkesby, the deputy governor of the RBNZ, emphasized the importance of having both debt to income (DTI) and LVR restrictions in place to better manage risks and maintain the resilience of the financial system. Although the market was anticipating these changes, the move does not have any immediate monetary policy implications.
One key point raised by Westpac economists is the possibility of regional disparities in house price-to-income levels influencing investor behavior. In regions where house prices are significantly higher relative to incomes, the introduction of DTI restrictions could incentivize investors to seek opportunities in areas with lower property prices.
Under the new DTI settings, banks will be allowed to have up to 20% of their loan portfolios allocated to owner-occupier borrowers with a debt to income ratio exceeding 6. This particular threshold aims to strike a balance between managing risk and maintaining financial stability in the lending sector.
The introduction of these new housing finance limits by New Zealand's central bank underscores the ongoing efforts to mitigate risks in the housing market. By implementing a combination of DTI and LVR restrictions, policymakers are striving to promote a more sustainable and resilient financial system in the face of market fluctuations. It will be interesting to observe how these regulations influence borrower behavior and investment patterns in the coming months.