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Debt serviceability restrictions

We are consulting on debt serviceability restrictions (DSRs) on residential mortgage lending. We are seeking feedback on the merits and potential design of two types of DSRs: restrictions on debt-to-income (DTI) ratios, and a floor on the test interest rates used by banks in their serviceability assessments.

27 April 2022

We have published our responses to feedback received on our proposed policy for debt serviceability restrictions (DSRs) on residential mortgage lending.

We use macroprudential tools to reduce the financial stability risks associated with ‘boom-bust’ cycles in the economy. This in turn helps us to meet our statutory purpose of ‘promoting the maintenance of a sound and efficient financial system’. Currently, our most commonly used macroprudential tool is loan-to-value ratio (LVR) restrictions. These measure how much a bank lends against mortgaged property, compared to the value of that property.

In November 2021 we sought feedback on the merits and potential design of two types of DSRs:

  • Restrictions on debt-to-income (DTI) ratios – which impose a cap on debt as a multiple of income; and
  • A floor on the test interest rates used by banks in their serviceability assessments which test the ability of borrowers to continue repaying their loans if interest rates rise to a certain level.

Following consideration of the submissions, we intend to proceed with designing a framework for operationalising DTI restrictions, in consultation with the industry and other stakeholders.

Summary of submissions: Debt Serviceability Restrictions (PDF 871KB)

Debt Serviceability Restrictions – full submissions (PDF 5.8MB)

Consultation Paper: Debt serviceability restrictions (PDF 2.81 MB)