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Enhancing the efficiency of macroprudential policy: activating DTIs and loosening LVRs

We are consulting on activating debt to income (DTI) restrictions and loosening loan to value ratios (LVR) for residential lending.

About the consultation

We are consulting on a package of changes to our macroprudential policies.

  1. The activation and calibration of Debt-to-Income (DTI) restrictions on residential mortgage lending.
  2. An easing in Loan-to-Value ratio (LVR) restrictions (subject to activating DTI restrictions).
DTI restrictions limit the portion of lending that banks can provide to residential borrowers with a DTI ratio above a certain threshold. A borrower’s (either an individual or household) DTI is calculated by dividing the total debt by total annual income.
LVR restrictions on residential lending have been the main macroprudential tool used in New Zealand since 2013. LVR restrictions limit the amount that can be borrowed relative to the value of a property.

Why we are asking for feedback

We use macroprudential policy to reduce the systemic financial risk associated with extremes in housing credit cycles in which the financial system can amplify a severe downturn in the real economy.

DTI restrictions can reduce financial stability risks, support house price sustainability, and fill a gap that is not covered by existing policies. Introducing DTI restrictions will also allow us to loosen LVR settings without increasing risks to financial stability. Working together, these tools enable us to more efficiently target financial stability risks.

What we want your feedback on

We propose activating DTIs to allow banks to lend:

  • 20% of their residential loans to owner-occupiers with a DTI greater than 6, and
  • 20% of their residential loans to investors with a DTI greater than 7. 

We are proposing easing the LVR settings at the same time as activating DTIs to allow banks to lend: 

  • 20% of owner-occupier lending to borrowers with an LVR greater than 80%, and
  • 5% of investor lending to borrowers with an LVR greater than 70%.

Read the consultation paper

Enhancing the efficiency of macroprudential policy: activating DTIs and loosening LVRs consultation paper (PDF, 1MB) 

How you can have your say

You can email your submission to [email protected].

Alternatively, you can send it by post to:

DTI settings consultation 2024
Prudential Policy Department
Reserve Bank of New Zealand
PO Box 2498
Wellington 6140

When you can have your say

You can have your say from Tuesday 23 January to Tuesday 12 March 2024 at 5pm.

Consultation background and next steps

In November 2021 we consulted on the merits and design of debt serviceability restrictions, including DTIs. 

In 2022, we held a public consultation on the framework for the DTI restrictions. After incorporating feedback from stakeholders, we published the framework document for DTI restrictions in April 2023. The framework document outlined the definition and procedures for activating the DTI restrictions. 

Debt serviceability restrictions consultation

We are now consulting on the proposed settings for DTI, as well as the proposed easing of LVRs.

After the consultation closes, we will consider the feedback and decide on the activation and initial settings of the DTI tool. We expect to communicate our decisions in the middle of 2024.