The Mortgage Supply Co. CEO Jenny Campbell recently wrote to then Finance Minister now Prime Minister, Bill English, warning against the potential application of debt-to-income restrictions to cool the housing market, stressing the unintended consequences would do more harm than good.
In her letter, Campbell wrote:
“I am writing to you on behalf of our group, to ask that you decline the Reserve Bank request to add Debt-to-Income Ratios to the Macro Prudential toolbox”
She said the LVR levers were already working to cool down the market but more time was needed to see their full effect. She added that a DTI regime would only hurt homebuyers who need the most help such as first home buyers, self-employed/small business and older borrowers or borrowers on fixed or low incomes.
“The Reserve Bank Governor states that he is concerned about affordability of loans as we enter a rising rate environment. We would argue that this has already been factored in on lending for some time. Most lenders stress-test their clients’ loan applications at an interest servicing rate of around 7.5-7.75%, and this stress test rate rises faster than interest rates.
“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.”
Speaking to NZ Adviser, Campbell likens the tool to “using a sledgehammer to crush a butterfly.”
“Brokers understand on a daily basis how difficult credit already is and how credit has become really scarce and that is a real problem, because if it gets too hard, people don’t do anything,” she said.
“If people put off buying their first home, they’re only going to be more expensive. We’re in a really great rate environment at the moment - if you’re ever going to buy a house, now’s a really good time to do it, but getting the mortgage now is just so difficult.
“The reality is the DTI regime benefits only one sector of the population and that’s people with high income. So it makes credit very easy for them and very difficult for everyone else and how is that fair?”
In her letter, Campbell mentioned how small business owners/self-employed borrowers would be impacted, saying “accessing start-up or working capital from their home is the easiest, and cheapest way to initially fund a small business. These borrowers, who may have a modest start-up income, or tax efficient financial statements, will find it very difficult to access any capital in this way.”
If DTI was introduced, Campbell says brokers will notice the impacts within their business too as more people find it harder to buy property, but at the same time the struggle would mean broker services are more needed than ever.
“It makes it an awful lot harder – a lot of people will get turned away, they won’t be able to access credit, which is absolutely terrible," Campbell told NZ Adviser.
“One of the wonderful things about being a broker is you always manage to find solutions to a problem, so in effect it could make more people need a broker because they will need an alternative solution to just walking into the usual branch to get a mortgage.
“So anytime it’s a bad time for the public to get a loan on their own, it’s a good time for an adviser but it’s hard. It means that there’s a lot more work involved in the deal, it’s about creating new lender relationships, it’s about promoting new products. So it wouldn’t be the end of the world but it would certainly put a handbrake on lending for a little while, while people get their head around how it works.”