Revealed: The level of income now required to buy a first home in NZ, according to Reserve Bank data

Average first-home buyer's income hits $146,000. Photo / Fiona Goodall

House prices may be falling, but buying a house isn’t necessarily getting easier.

New Reserve Bank data shows the level of income required to get a mortgage is continuing to rise with interest rates.

The average first-home buyer (or pair/group of first-home buyers) who took out in a mortgage in September had an annual gross income of $146,000. This was $4000 more than in June.

Meanwhile, the average other owner-occupier (without investment property) had an income of $184,000 – $3000 more than in June.

While the country's median house price fell by $40,000 over the three-month period, according to the Real Estate Institute of New Zealand, the cost of servicing debt rose.

Floating mortgage rates rose by around a percentage point to 6.6 per cent by the end of September, according to interest.co.nz. Meanwhile the average fixed two-year rate rose by a lesser amount to 5.5 per cent.

Rising interest rates meant prospective borrowers had to work harder to satisfy their banks they could service their debt.

Accordingly, the portion of new mortgage lending that went to people seeking a lot of debt, worth more than five times their annual incomes, fell for the 10th consecutive month in September.

Nearly 45 per cent of new mortgage lending in the month went to borrowers with debt worth more than five times their incomes. This was a fall from 50 per cent in June, and a drop from the recent high of 60 per cent in November 2021 when house prices peaked.

Breaking these figures down, 42 per cent of lending to first-home buyers in September went to those with debt worth more than five times their income – the lowest portion since July 2020.

For other owner-occupiers without investment property, this portion sat at 34 per cent. Meanwhile, for investors, it fell to 60 per cent.

CoreLogic's head of research Nick Goodall said the figures were unsurprising in the current environment, where rising interest rates are cooling the economy.

In August 2021, when interest rates were rock bottom, house prices were sky high, and a lot of bank lending was going to borrowers taking out big loans compared to their incomes, the Government (after several years of debate on the issue) empowered the Reserve Bank to impose debt-to-income (DTI) ratio restrictions on bank lending.

It said the Reserve Bank could use this tool to maintain financial stability.

The Reserve Bank doesn't have plans to impose DTI restrictions at this stage, but it is consulting on how restrictions could be applied in the future.

Once it has decided on this, banks will need a year to update their systems to accommodate the rule.

The Reserve Bank's proposal, detailed in a consultation document released last week, is for DTI restrictions to be designed similarly to loan-to-value ratio (LVR) restrictions.

These limit how much banks can lend to borrowers with small deposits and are likewise aimed at protecting the financial system.

The Reserve Bank said a DTI restriction could, for example, require banks to ensure that no more than 20 per cent of their new mortgage lending goes to borrowers seeking debt worth more than seven times their incomes.

It supported setting a threshold and giving lenders some flexibility to cross it.

However, the Reserve Bank suggested it didn't support setting different restrictions for different types of borrowers, like it does with LVRs.

It noted investors tend to take out higher amounts of debt compared to their incomes, so would be most affected by a uniform restriction.

Indeed, only 2 per cent of lending to first-home buyers in September was above the fairly high 7:1 DTI ratio the Reserve Bank used in the example in its consultation document. Meanwhile, 16 per cent of lending to investors fell into this category.

Goodall suspected that if the Reserve Bank eventually introduced DTI restrictions, it would ease LVR restrictions.