NZ Reserve Bank announces housing loan reforms to reduce real estate market default risk.


This Tuesday, the Reserve Bank of New Zealand announced new reforms for housing loans, primarily aimed at reducing the default risk in New Zealand’s real estate market.

The Reserve Bank of New Zealand announced on Tuesday that it will restrict the amount of housing loans available to high-debt borrowers. This move aims to reduce the default risk in New Zealand's real estate market, which experiences significant price fluctuations.

The new regulations will come into effect from July 1 and will apply to new loans for both owner-occupied and investment properties, the central bank said in a statement.

At the same time, the Reserve Bank of New Zealand will also ease Loan-to-Value Ratio (LVR) restrictions, which currently limit the issuance of low-deposit loans by banks.

Reserve Bank of New Zealand Deputy Governor Christian Hawkesby stated that with the Debt-to-Income (DTI) and Loan-to-Value Ratio (LVR) restrictions, it is possible to better target relevant risks while achieving the same or better financial system stability.

Westpac economists noted that this move had long been signaled to the market and has no impact on monetary policy.

However, Westpac pointed out that the differences in the house price-to-income ratio in different regions might lead to changes in investor behavior.

"Given the significant differences in the house price-to-income level across the country, the implementation of DTI in high house price areas may encourage investors from high-income regions to invest in lower house price areas," the report noted.

The new DTI setting allows banks to use 20% of their loan portfolios for owner-occupied borrowers with a debt-to-income ratio of over 6.



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Debt to Income Ratio

The Debt to Income Ratio (DTI), also known as the Back End Ratio, is a financial metric used to assess the financial health of an individual or household. It represents the ratio of an individual's or household's monthly debt payments to their total income.

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