New Zealand Debt-to-Income Ratios

What is a debt-to-income ratio (DTI)?

Debt-to-income ratios are a calculation that determines how much someone can borrow. The ratio is found by dividing the total debt by the total gross income.

How are DTI ratios used in New Zealand?

The Reserve Bank of New Zealand (RBNZ) has set a DTI of six. Lending over that ratio is restricted. Under the restrictions, banks can allocate:

• 20% of new owner-occupier lending to borrowers with a DTI ratio over six.
• 20% of new investor lending to borrowers with a DTI ratio over 7.

There are some exemptions where the DTI rules don’t apply, including (but not limited to):

• Portability – i.e. when selling and buying, you keep your mortgage but change the property.
• Refinancing – where the new loan value doesn’t exceed the original loan value.
• Kāinga Ora loans
• Bridging finance
• Property remediation (e.g. leaky home).

How much can I borrow under the DTI restrictions?

To know how much you could borrow under a DTI ratio of 6, multiply your yearly income by 6. This gives you the maximum amount you could borrow.

For instance, with a debt-to-income ratio of 6, if the applicant earns $100,000 a year, they could borrow up to $600,000 ($100,000 x 6 = $600,000) – Subject to affordability of course!

How do lenders use the debt-to-income ratios (DTI)?

Lenders must lend within the DTI restrictions, but this is only part of their assessment process. Lenders each have their own complicated affordability calculators and risk profiles. Non-bank lenders generally have a higher risk tolerance and will lend to applicants that the banks would refuse.

So, what does DTI mean for borrowers?

While DTI restrictions may sound like just one of many hurdles to jump through, their introduction in 2024 has enabled more first-home buyers and investors to get finance. This is because the restrictions enabled lower loan-to-value ratio (LVR) limits.

The key is not to get bogged down by financial policies and their possible ramifications for your ability to borrow. As mortgage brokers, we stay current with the various lending rules and policies. This enables us to advise you on how much you can borrow and which lender is best for you. Contact us to find out how we can help you.

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