Govt won't commit to debt-to-income limits on house buying

Reserve Bank governor Graeme Wheeler has said he was not proposing to use debt-to-income restrictions at this time, but he was signalling he wanted it in reserve, just in case. Photo / File

The Reserve Bank is asking the Government for new powers which would limit lending to home buyers if they did not earn enough.

Finance Minister Bill English won't say whether he will approve the debt-to-income restrictions, warning it would be a significant policy change which has never been tested in New Zealand.

If introduced, the restrictions would restrict what New Zealanders could borrow for a mortgage relative to their income. It is used in the United Kingdom, where buyers cannot get a mortgage higher than 4.5 times their annual earnings.

Reserve Bank governor Graeme Wheeler said he was not proposing to use the tool at this time, but he was signalling he wanted it in reserve, just in case.

"Restrictions on high [debt-to-income] lending could be warranted if housing market imbalances were to deteriorate further."

English said the central bank already had a range of tools it could use to dampen house price inflation and stabilise the economy.

The Government needed to consider debt-to-income limits seriously because they were "a fairly significant tool", he said, Ministers would meet with the bank in the next few weeks to discuss the matter further.

English said he wanted to see the impact of recently-introduced tax changes on the housing market before committing to any further changes.

As of October 2015, any gains on houses bought and sold within two years are taxed regardless of the buyer's intent. And as of July, a withholding tax has been imposed on some sales of residential property. The impact of these measures is not yet clear, English said.

The Reserve Bank says the debt-to-income limits will target investors, but there are also concerns they could hurt first-home buyers.

If income-related restrictions were used, English said it was unlikely further measures could be introduced to counter-act any impact on first-home buyers. He was not keen on a stamp duty on offshore buyers of residential property.

"We don't completely rule things out, but a convincing argument hasn't been made for stamp duty," English said.