19 July 2024

RBNZ’s new debt-to-income ratio to affect property buyers from 1 July

RBNZ’s new debt-to-income ratio comes into effect from Monday, 1 July and is expected to change the game for property buyers.

The new ratios will cap borrowing at six times household income for owner-occupiers to curb excessive debt and enhance financial stability. For property investors, borrowing is capped at seven times their income.

The significant gap between household incomes and what will be required under the new DTI regulations is likely to be challenging in many New Zealand regions, according to Vanessa Williams, spokesperson for realestate.co.nz.

Based on their 12-month national average asking price of $902,988, property seekers will need a household income of $120,398 – just $6,0411 less than the average annual household gross income of $126,411.

In Hamilton city, for example, with an average asking price of $794,032, property seeker may require an income of $105,871 (under DTI rules).

Queenstown was the most expensive district in which to buy property, with a 12-month average asking price of $1,953,091. Under new DTI requirements, property seekers wanting to borrow the full 80% on property in this region would need a minimum household income of $260,412. Waiheke Island followed with an average price tag of $1,901,507, requiring an income of $253,534. Wanaka, Rodney and North Shore City rounded out the top five, needing incomes between $175,544 and $245,381.

Vanessa attributes the high prices to lifestyle appeal as “these districts offer a blend of urban and rural lifestyle options”.

According to her, as these regulations apply to household income, therefore, purchasing via a syndicate or as a couple could offer more opportunities.

The new regulations may reduce the number of buyers by limiting their options. However, with high interest rates, Vanessa doesn’t expect DTI ratios to start biting immediately.

“The idea of DTI ratios is to slow down the market and, ultimately, help prevent people from getting into unmanageable debt, which isn’t necessarily a bad thing. We will have to wait and see what impact this has overall.”

If you need to know how the new DTI ratio affects districts across New Zealand, click here

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