Proposed debt-to-income lending restrictions would have a massive impact on the Auckland housing market and would do a better job of catching investors than existing rules, says the chief executive of Cooperative Bank.

The Reserve Bank this week indicated it was looking at the possibility of introducing new mortgage lending restrictions based on debt to income ratios.

The rules would require Government approval but initial reaction from Prime Minister John Key and Finance Minister Bill English have indicated they are prepared to consider the option.

Co-op Bank chief Bruce McLachlan said he had modelled a scenario based on the UK where lending ratios were set at 4.5 times income.


Under that scenario the rules would catch 38 per cent of Co-op Bank's lending in Auckland he said, as opposed to just 16 per cent nationwide.

The vast majority of that 38 per cent would be investors not first home buyers, he said.
Investors were equity rich but cash poor so they would find it harder to get around debt to income ratios than LVRs.

McLachlan said he didn't claim that Co-op Bank's loan book - at just above $2 billion - was representative of the whole market.

But his gut feel was that if anything the bigger banks would skew to even more investor lending.

He said he was in favour of the debt to income rules even though they might hit the bank's bottom line in the short term.

"We're a cooperative model and we take a long term view," he said. It was clear that some sort of constraint of Auckland's red hot market, whether on the demand side or supply side, was needed for the balance of New Zealand's economy.

"It's good for New Zealand, it's good for Auckland and it gives our children a greater opportunity of realising their he dream of one day owning their own homes".

McLachlan said he would like to see construction loans and bridging loans excluded from new rules.

"The last thing you'd want to do is constrain new building."

He also felt there was a good case for excluding Welcome Home loans - those part of a Government subsidised programme to help first home buyers.

That would "ensure first home buyers are not unduly impacted by any such regulation," he said.