Mortgage brokers join opposition to debt clamp-down tool

Mortgage brokers have joined the call for the government to decline the Reserve Bank's request to introduce debt-to-income limits for mortgage lending.

The Reserve Bank of New Zealand wants to be allowed to use a debt-to-income limit because it is concerned about the rising amount of lending being done by banks at five and six times a buyer's income.

The government has yet to agree to add such a tool to the bank's toolkit and is still discussing the proposal.

A group representing over 70 mortgage brokers, the Mortgage Supply Company, today sent a letter to Finance Minister Bill English opposing the move.

"Overall, it is more difficult to get a mortgage right now, than at any time in the last 10 years - except for during the GFC [Global Financial Crisis]. The LVR [loan-to-value] levers are working to cool the market, and simply need more time to bed in," the letter said.

"As an industry, we think the Banks voluntary tightening shows that the lenders are prudent, and have proven that they can be responsible in a heated market, without further regulatory interference from the Reserve Bank."

The self-employed, small business owners, older borrowers and borrowers on fixed or low incomes would also be worst affected by the changes.

"DTI's [debt-to-income] are an extremely blunt tool - and a tool that will only work in favour of borrowers with high incomes. Regulation should be fair, and ordinary New Zealanders deserve the opportunity to decide themselves when to become home-owners."
Ashley Church, chief executive of the Property Institute of New Zealand, earlier said that introducing limits would have 'serious and unintended consequences' for the Auckland property market and would 'almost certainly make the Auckland housing crisis even worse'.

"The number of new homes being built - the very thing that Auckland needs most - would plunge as the number of people earning enough to buy them would dwindle to a trickle.

"So the policy could very well kill off the one thing that can fix the Auckland housing crisis - the construction of new homes".

A similar policy was introduced to the United Kingdom in July 2014 limiting buyers to a mortgage which does not exceed 4.5 times their annual earnings.

Church said if that rule was applied here it could limit a typical Auckland family to a mortgage of less than $400,000.

The Reserve Bank is worried that continued growth in high debt to income lending would threaten the resilience of New Zealand's banks if there is a down-turn.

In its financial stability report released yesterday the central bank said despite a slow-down in Auckland property price growth in the last six months vulnerabilities in the housing market had increased.

While loan to value restrictions had reduced the share of risky loans on bank balance sheets and improved bank resilience to house price falls it said that could be undermined if the growth in high debt to income lending continued.

"High-DTI loans are at a higher risk of default in the event of an economic downturn, so an increasing concentration of this lending is of concern."

But Church said it understood the Reserve Bank wanted to protect the economy against the risk of financial shock.

"But doing anything which reduces the construction of new dwellings is a hollow solution because it will only delay an even bigger problem down the track".

"The only sustainable way to fix the Auckland housing crisis is to build more homes as quickly as possible".