Debt-to-income levels will become a reality for mortgage borrowers next March, says Kelvin Davidson, CoreLogic’s chief economist.

Although the Reserve Bank hasn’t said it will introduce DTIs, it has indicated March next year is the date they will become a formal tool along with LVRs to restrict residential mortgage lending.

Davidson says the RBNZ will activate DTIs next year, but it won’t be to curb lending in this housing cycle but for subsequent cycles so house prices never rise 40 per cent over two years as they did during the Covid pandemic.

Davidson says the RBNZ’s recent release about the debt-to-income ratios didn’t say anything new. “There was no indication of the limit – whether it would be five, six or seven times income – exemptions for new builds, although it has to be assumed there will be, or speed limits.”

He says the release was to keep DTI restrictions in front of people to remind them the RBNZ was still looking at it and could introduce them. It won’t be an issue for mortgage holders and new borrowers even if they are activated in March because risky lending has been reined in, he says. “The system is not that stretched.”

Davidson says it is likely if DTIs are put in place they will not bind in this cycle.

“Recently interest rates have risen at such a rate so borrowers can’t service as much mortgage debt and house prices have come down so they haven’t had to borrow as much. That is why DTIs activated next year might not bind because things have tightened up.”

He says introducing them is about keeping a lid on future property cycles, tying house prices to income, and trying to limit house price growth to 10 per cent or less year-on-year.

“While it will not restrict growth immediately it will in the long run. We won’t see outright house price falls but they won’t rise as quickly in future.”

Davidson says it’s anybody’s guess when the nitty-gritty of DTIs is laid out by the RBNZ. “It could be in the bank’s six-monthly Financial Stability Reports, usually released about May and November.”