"Hold fire" on debt-to-income limits: real estate boss

by NZ Adviser26 Oct 2016
Head of Century 21 New Zealand, Geoff Barnett has cautioned Wellington’s decision-makers on giving the Reserve Bank the green light to introduce loan-to-income restrictions.

According to a Fairfax article, the Reserve Bank issued a formal request to Finance Minister Bill English for approval to introduce debt-to-income ratios on lending, whose response was for further information.

If debt-to-income ratios were introduced, it would limit borrowers to a multiple of their gross income, potentially restricting lending to five times gross household incomes.

Barnett says if debt-to-loan ratios were introduced they could be a “brutal and blunt tool" and “may not be necessary”. 

“I appreciate that the Government and Reserve Bank are in continued discussions about possible loan-to-income restrictions but they first need to fully assess the impact of the latest round of much tougher loan-to-value ratios (LVRs),” says Barnett. 

“Up until now the different LVR restrictions have helped de-risk the banks but they haven’t had an overly dramatic impact on the housing market. But given how many investors make up the Auckland real estate market in particular, I can’t help but think that lifting the deposit requirement to 40% for investors will have a more measurable effect. 

“So I’m calling on the decision-makers to let the latest LVR restrictions take full effect over summer and then make a full and frank assessment of their impact and the residential market. I would hate to hear before Christmas that loan-to-income restrictions are imminent.”

Barnett urges policy makers in the capital to wait to see the extent of the impact from the LVR limits and says Auckland is already heading down a more sustainable growth path in house prices, because in addition to the LVR speedbumps, housing supply is catching up and more land is getting released.

“I call on Wellington’s policy makers and implementers to hold their nerve. They’ve been very patient in recent years and so what’s a few more months. Let’s see the full impact of the 40% deposit rule for investors before introducing an even tougher restriction on the average Kiwi home buyer.” 

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