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Latest quarterly Reserve Bank figures show that the country's new first home buyer borrowers have just started to stretch themselves a little further again


By David Hargreaves,

The country's first home buyers (FHBs) have just started to push the boat out again slightly when it comes to their borrowing levels.

New figures from the Reserve Bank (RBNZ) show that overall the debt-to-income (DTI) ratios of the FHBs have just increased a little relative to the quite low levels they hit earlier this year - suggesting that the 'low' point of this cycle may have been passed.

Overall, including all categories of new borrower the latest figures show that in June, in terms of DTI ratios the country's borrowers are just about the least geared up they have been since the RBNZ started compiling this detailed information in 2017.

The RBNZ watches closely for loans that are in excess of five times the annual income of the borrower. In its summary of the latest figures, the RBNZ said the monthly share of new mortgage commitments with DTI in excess of five was 33.9% in June 2023, down from 34.4% in March. The lowest share since the data collection began was also recorded this quarter, in May 2023, at 33.3%.

The share has fallen from a recent high of 60.2% in November 2021.

The detailed DTI figures are compiled monthly, but released quarterly. What the data has shown in the time the RBNZ has been producing it is that DTIs were at quite high levels in 2017, dropped through 2018, started rising again in 2019 and became stratospheric through 2020-21, hitting peak levels in late 2021.

The overall reduction has no doubt been giving the RBNZ considerable comfort as it looks ahead to the possible introduction of DTI limits early next year.

The RBNZ has wanted to have a DTI tool in its 'macro-prudential toolkit' (a toolkit that already includes the loan to value ratio or LVR limits already in use) since at least 2016. But the RBNZ struggled to secure government support for DTI measures, firstly from the National-led government and then the current Labour government. This was due to concerns about the potential impact on first home buyers.

Having finally received government approval in 2021 the RBNZ then began preparatory work and earlier this year released a debt servicing framework, which will enable restrictions to be possibly brought in by March 2024 if needed - with the banks therefore getting 12 months to get their systems ready, should they be required.

Notably, however, the RBNZ says given the housing market is currently in a downturn, there's no immediate need to implement DTI restrictions.

It's not completely clear what sort of DTI levels the RBNZ would be 'happy' with. And the question of what sort of limits might be imposed if a debt servicing framework is introduced have not yet been explicitly addressed.

It will be interesting to see what if anything the RBNZ makes of the slight increase in DTI borrowing in excess of five times income by the FHBs in the latest figures. It's worth remembering that the RBNZ relaxed the loan to value ratio (LVR) restrictions from the start of June - and there's definitely been an uptick in borrowing activity from the FHBs since then, from what had already been relatively (compared with a pretty dead market) active levels.

The uptick in the level of higher DTI borrowing by the FHBs is relatively minor, certainly compared with how far the DTI levels have fallen for new borrowers since the peaks of about two years ago. But it will be worth watching to see if this is the start of the levels creeping up again and whether we have now witness the passing of the 'low point' for overall DTI levels.

As we've done since the start of this data series we are comparing the latest month's figures (June 2023) with the last month from the previous release (March 2023) and we are also comparing both these with June 2022 and June 2021.

As ever, we've got two tables for you with the first one (immediately below) showing the figures for first home buyers (FHBs) and other owner occupiers, while the second table looks at figures for investors and owner-occupiers who have investment property collateral.

So, as for the first table immediately below, DTIs of above five are regarded as getting up there, so we highlight the percentages of total mortgage money that is borrowed by both first home buyers and other owner occupiers at DTI ratios of above FIVE. Please note that our calculations here exclude the (small) amount where the DTI size is unknown.

The table below shows the percentage of new mortgage money for first home buyers and other owner-occupiers that is on debt-to-income ratios of over five times:


That's the FHBs and the owner-occupiers. Our second table looks at the investor and those owner-occupiers with investment collateral. For this table we choose a more bracing DTI level and look at the percentages of those with debt-to-income ratios of over SEVEN times. Again our calculations exclude the (small) amount of mortgage money where the DTI size is not known.

The next table shows the percentage of new mortgage money for both investors and owner occupiers that have investment collateral that is on debt-to-income ratios over seven times:


As you can see, the investor figures are still pretty muted and one wonders if they could or would go much lower than this.

We will find out in due course. We'll be keeping an eye on the data as it is released.

This story was originally published on and has been republished here with permission.