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Latest quarterly Reserve Bank figures show new mortgage borrowers are gearing themselves up notably less than has been seen in recent years


By David Hargreaves

The falling housing market is bringing a welcome reduction in the amount of debt stress that home buyers are taking on with their mortgages.

New mortgage borrowers are continuing to stretch themselves much less thinly than they were, according to the latest debt to income ratio figures produced by the Reserve Bank.

The latest figures are a continuation of a recent trend, given the way mortgage interest rates have risen sharply and the fact the housing market has been falling. The RBNZ says that debt-to-income ratios of new borrowers have now been falling for 10 months. Previously we had seen some pretty eye-watering DTI ratios achieved.

The data will be further relief to the RBNZ, which had to watch the debt to income ratios race higher and higher over the past few years.

It means of course that while new mortgage holders now are coming on a lower DTIs - those who took on mortgages at very high DTIs a year ago are still in a very geared situation. But in terms of people now borrowing, the ratios are looking a lot less precarious.

The RBNZ had sought for some years to get a debt servicing restriction, probably a debt-to-income measure, included in its 'macro-prudential toolkit' - which already included such things as the loan to value ratio (LVR) restrictions.

Having finally received government approval the bank is working toward having a debt servicing framework ready so that restrictions could possibly be brought in by March 2024 if needed.

The RBNZ keeps a close eye on borrowing that's done on DTIs of over five - in other words where the amount borrowed is over five times the annual income of those taking out the mortgage. 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.

The most heavily geared borrowers are typically the first home buyers. And the debt to income data has shown that in recent times well over half the monthly amounts borrowed by FHBs have been done on DTIs of five or above.

But the September figures show, that nationwide at least, well under half of the borrowing is now being done at DTIs over five.

Auckland FHB figures are still higher but they are dropping.

The debt-to-income data has been gathered and produced by the RBNZ since 2017. It is monthly, but released quarterly. Generally speaking the data between 2017-19 showed a falling trend, from quite high levels, before beginning to rocket. And now the figures are coming down again.

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

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. Our calculations in both tables 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:


Okay, that's the FHBs and the owner-occupiers. Then our next 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.

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:


So, there we have it. The sharp easing that's been under way for the past 10 months is continuing.

How much further may it go? Well, we'll be keeping an eye.

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