“We concluded that the introduction of debt-to-income [DTI] restrictions last year means LVR settings can be less restrictive on average. This includes looser default settings that we expect will be in place most of the time, except for when risks are particularly elevated.”
DTI restrictions help to underpin borrower resilience by acting as a guardrail for risky lending, helping contain the severity and consequences of housing market corrections.
McGregor confirmed DTI settings would remain unchanged as they are set to limit high-risk lending in housing upswings and periods of low interest rates, without the need for adjustment.
“Now is an appropriate time to move to the new default settings. House prices are within our range of sustainable estimates. Growth in mortgage lending remains moderate and the share of high-risk lending is low.”
The Reserve Bank will consult with banks on changes to their Conditions of Registration over the next two weeks.
Government welcomes change
Finance Minister Nicola Willis welcomed the news, and said that home ownership is part of the Kiwi dream.
“Relaxing the restrictions on the amounts banks can lend will make it easier for Kiwis to get a foot on the property ladder.
“Presently, only 20% of the new loans banks are allowed to make to owner-occupiers can go to buyers who have deposits of less than 20% of the value of their properties. The Reserve Bank is proposing to increase that limit of new lending to 25%. That will make more funding available to first-home buyers.”
Willis said she looked forward to hearing the outcome of the Reserve Bank’s consultation with the commercial banks.
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.
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