Debt to income ratios approach second half of the year

Debt to income ratios approach second half of the year

Should you be worried?

Well generally, no. By design the DTI(Debt to Income Ratio) at 6-7 times income is more than what you could borrow. At the time of writing this article at least. Also the Reserve Bank of New Zealand is also proposing to ease deposit requirements at the same time.

So why do it?

Yeah good point, well as interest rates drop, the loan amount you can afford increases. The DTI is designed to try and get rid of big peaks in house prices during times when such behavior feels justified. Like a low interest rate environment. In some sense you could have more room during tough economic environments to drop interest rates and encourage spending on things other than housing.

So whats exempt?

Business and commercial loans are exempt. And there is also a prospect of encouraging construction by exempting new house purchases and builds. The banks will have some room to go outside of these rules for a portion of their book, however we see this more to deal with complex situations where it is hard to calculate the DTI(business/personal debt, joint debt etc).

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