The Debt to income ratio which will be bought into the RBNZ’s macroprudential rules is set to change the landscape somewhat. How will it affect the market and you? Well it depends on a couple of factors which will become more apparent next year.
How will it work?
The multiplier at the time will be a key factor. The RBNZ has given an example of six times income, this could be just as easily 5 or 7. Basically you would multiply your annual gross income including rent income by the multiplier to get the max debt you would be allowed to have.
Interestingly they will have an investment class and a non investment class as they have done with min deposit requirements. They have also left an allowance for the banks to go outside this rule. Using 15% of the book as an example they have alluded to a speed brake which would mean the bank can go outside the DTI(debt to income) rule for some clients. Currently the RBNZ does this with low deposit buyers and it has meant that the struggle is real for those with less than a 20 percent deposit.
How do I not take part?
Ok so you might be exempt if the bank decides you are worthy of breaking the rule, who will those people be? My guess is clients with a lot more equity than the min requirement(currently 40% for investors), clients that have larger size portfolio(lower cost to manage) but not too large(concentration risk). And clients that might have their home lending with that particular bank.
New builds and constructions loans will be exempt. As will refinancing or switching between homes.
How will this affect the housing market?
My guess is strong cashflow properties will be more interesting if the plan is to have multiple investments. Obviously support will remain for new builds and a build out the back. So properties with a bit of land is good. Paying down mortgages and supporting strategies will become more popular. Think investments with potential to grow cashflow and the use of products such as revolving credit home loan or offset mortgages.
