DTI is a metric used by lenders to determine a borrower’s capacity to debt repayments obligations. A DTI ratio compares the borrower’s debt to their gross (pre-tax) income.

The Reserve Bank of New Zealand has reaffirmed the activation of debt-to-income (DTI) limitations and the relaxing of loan-to-value ratio (LVR) restrictions.

The new DTI Regulations will limit the amount of high-DTI lending that banks may do. LVR regulations limit the amount of low-deposit lending they may do.

Banks must comply with the Reserve Bank’s new debt-to-income (DTI) limitations beginning July 1, 2024. These limitations will apply to all new financing for residential residences in New Zealand, including owner-occupiers and investors.

DTI is a metric used by lenders to determine a borrower’s capacity to debt repayments obligations. A DTI ratio compares the borrower’s debt to their gross (pre-tax) income.

The new DTI standards would enable banks to lend up to 20% of owner-occupier loans to borrowers with a DTI ratio of 6 or higher, and 20% of investment loans to investors with a DTI ratio more than 7.
Banks will also take into account other lending guidelines and criteria, as well as conduct their own affordability evaluations. These will impact whether or not they lend to a prospective borrower, as well as the amount they lend.

The Reserve Bank of New Zealand is in charge of protecting financial system stability in New Zealand. It employs’ macroprudential measures’ to guarantee that banks do not take on excessive risk.

It seeks to guarantee that banks do not accumulate too much of lending risk in their Balance Sheet during economic ‘booms’, which might lead to a surge of defaults during economic downturns.

DTI regulations do not apply when refinancing a mortgage if the new loan value does not exceed the prior loan amount. It will not apply to bridge finance, property remediation, construction loans, etc.

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