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Debt serviceability restrictions

Debt serviceability restrictions are a macroprudential policy tool — used to support financial stability and sustainable house prices by reducing the risk of ‘boom-bust’ credit cycles that amplify downturns in the real economy. They complement loan-to-value ratio (LVR) restrictions on mortgage lending, another macroprudential tool the Reserve Bank has been using in recent years.

Finalised debt-to-income (DTI) restriction framework — 3 April 2023

We have released our finalised DTI restriction framework that sets the technical specifications that banks need to comply with if a DTI tool is activated.

Publication of the framework does not immediately activate DTI restrictions or set a calibration for them. Instead, it provides banks with:

  • clarity in terms of the definitions of debt and income and future data reporting requirements, and
  • a timeframe for making any changes to their internal systems and processes to be able to comply with a possible DTI restriction in future.

DTI restrictions on residential mortgage lending, when implemented, set limits on the amount of debt borrowers can take on relative to their income. This supports financial stability by limiting higher-risk mortgage lending, thus reducing the likelihood of a future housing-related financial crisis.

This in turn helps us to meet our statutory objective of 'promoting the maintenance of a sound and efficient financial system'. By linking credit availability to income growth, DTI restrictions complement other tools we use to support financial stability, including loan-to-value ratio (LVR) restrictions on residential mortgage lending.

More information

Past consultations

We asked for feedback on the technical design aspects of the regulatory framework for DTI restrictions.

Rules on these design matters need to be agreed before banks can begin making the systems changes required to be prepared to implement DTI restrictions. These changes will take banks around 12 months. We have not made a decision to activate DTI restrictions and are not consulting on a particular DTI setting at this stage.

Please let us know your views on the questions set out in the consultation paper by 14 December 2022 (now closed).

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 asked for 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.