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DTIs cost benefit analysis ordered

Another obstacle has been placed in the Reserve Bank’s path towards the introduction of debt-to-income ratios (DTIs).

Wednesday, February 8th 2017, 2:58PM 1 Comment

by Miriam Bell

Finance Minister Stephen Joyce has told the Reserve Bank to conduct a full cost-benefit analysis, along with a public consultation, on DTIs before any decision is made on their use.

Joyce said he has discussed DTIs with Reserve Bank governor Graeme Wheeler who is concerned about the levels of debt in some households given recent increases in house prices.

“I have decided that, consistent with good regulatory principles, a full cost-benefit analysis and consultation with the public should occur before I consider whether to amend the Memorandum of Understanding (MOU) on macro-prudential policy.”

Given the novel nature of a DTI tool and the fact there are a number of possible policy actions the Reserve Bank could take, it is important the costs and benefits of the different policy options are adequately and rigorously explored, Joyce said.

While the Reserve Bank has been pushing for the ability to add DTIs to its MOU with the government, the government has been less enthusiastic about their adoption.

Late last year a planned meeting, on DTIs, between the Reserve Bank and then Finance Minister Bill English was delayed indefinitely when English ascended to the role of Prime Minister.

At the time, economists said the delay meant it would be unlikely that DTIs would be introduced before the end of 2017.

Today’s announcement makes the arrival of DTIs anytime soon even more unlikely.

Joyce said the Reserve Bank already has a number of regulatory tools available to it to address systemic risks it identifies and he is cautious about adding further tools to the toolkit.

“The use of macro-prudential tools can be complex and affect different borrowers in different ways. I am particularly interested in what the impacts could be on first home buyers.”

This development should please critics of the proposed DTIs who have said their introduction could have a severe impact on first home buyers and is likely to impact negatively on attempts to boost housing supply.

Meanwhile, the Reserve Bank is still collecting information about the DTI levels that borrowers are obtaining and assessing the potential case for the use of DTIs.

It has indicated that public consultation on DTIs will commence in March and take place during the first half of 2017.

In the past, Wheeler has refused to be drawn on the level at which a DTI ratio could be set if it is introduced.

He has also said that if the Reserve Bank did have DTI ratios at its disposal, it wouldn’t introduce them at this time.

Read more:

Progress of DTIs stalls  

Addressing housing market risks  

Risks in new RBNZ proposal  

 

 

 

Tags: Macro Prudential Tools RBNZ Reserve Bank

« Questions over future RBNZ policyWhat the RB governor said »

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Comments from our readers

On 9 February 2017 at 8:46 am LNF said:
Debt to income, or servicing ability used to be standard lending policy. I don't know why that changed. Perhaps debt is an important part of the economy. Perhaps someone who knows a lot more than me can enlighten

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.99 5.69 5.69
ASB Bank 7.89 5.99 5.69 5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.40 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.94 - - -
BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online ▲7.75 ▲6.65 ▲6.35 ▲5.99
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society ▼8.60 6.75 6.40 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 5.95 6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.44 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.69 6.49 6.49 6.49
TSB Special 7.89 5.69 5.69 5.69
Unity 7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.10 6.05 5.79 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 7.99 6.10 6.09 5.69

Last updated: 20 November 2024 9:45am

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