Understanding The New Reserve Bank Rules
The Reserve Bank has recently announced upcoming changes to the Debt-to-Income (DTI) rules.
The Reserve Bank have advised that around mid 2024, they are looking to introduce new DTI rules for both prospective / current home owners & investors.
What Are The New Changes?
DTIs limit how much you can borrow based on your annual gross income. The Reserve Bank are looking to introduce a DTI limit of 6x your annual income for home owners, and 7x your annual income for investors. These rules won't apply to new builds but rather existing property.
Say you and your partner are first home buyers, earning a joint gross annual income of $150,000. Based on the proposed changes, you can purchase a property with maximum lending to the value of 6x your income.
$150,000 x 6 = $900,000* maximum lending.
*Subject to capability to serviceability and lender restrictions.
For investors, you are looking at a preliminary figure of 7x your annual gross income including any rental income you have. So if you were an investor with an owner-occupied home and one investment property, you would look at your estimated maximum lending based on the following equation:
Annual income $150,000 + Rental Income $31,200 (calculated at $600 per week) = $181,200 x 7 = $1,268,400
Please note, any debt you hold including existing loans, credit cards, student loans etc. the amount owing on these will be deducted from your maximum loan size.
So if the investors had an existing home loan of $500,000 in the example above, this would decrease their lending capability from $1,268,400 to $768,400.
They are also looking to decrease the deposit size for investors from 35% to 30% of the purchase price for existing properties. This will give investors an extra boost, as not only do they then need only 30% towards their purchase, but they also now have more lending on the other side of 70% from 65%.
So What Does This Mean For Your Lending?
It's important to note that these proposed changes will not affect your current lending.
Although you may be thinking "Oh no, this is going to limit my future lending significantly" this isn't quite the case. Currently, roughly less than 20% of those with existing loans in NZ have loans above the proposed DTI changes. The changes act as a barrier to avoid events similar to those a couple years ago where interest rates were low & house prices were high, encouraging more prospective buyers to apply for larger loans to accommodate for this state of the market. If this instance were to occur again, the DTI would provide a barrier to protect you in this instance from interest rates then rising.
If you'd like to understand your lending options now as well as once these new rules are introduced, feel free to get in touch for a no obligation chat.
Looking forward to hearing from you,
Fiona & Amy
NZ Mortgage Advice are a team of experienced Mortgage Advisors based in Hawkes Bay & Nelson, helping clients across New Zealand with their lending.
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Email: fiona@nzmortgageadvice.co.nz
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