Government mulls income curbs on New Zealand mortgage lending

The New Zealand government signaled Wednesday that it is considering allowing the central bank to introduce debt-to-income (DTI) limits on mortgage lending in a new bid to curb exposure to a possible house price bubble.

The Reserve Bank of New Zealand (RBNZ) would carry out a full cost-benefit analysis on DTI limits and public consultation before any decision was made on the potential use of the macro-prudential policy tool, Finance Minister Steven Joyce said in a statement.

"I have discussed DTIs with the Reserve Bank governor, who remains concerned about the levels of debt in some households in the context of recent increases in house prices," Joyce said.

"I have decided that, consistent with good regulatory principles, a full cost-benefit analysis and consultation with the public should occur before I consider whether to amend the Memorandum of Understanding (MOU) on Macro-Prudential Policy."

The MOU agreed by the Finance Minister and the RBNZ governor governs the use of macro-prudential tools and sets objectives for and requires accountability around the use of the tools.

DTI limits were designed to regulate the amount of debt that a mortgage borrower could access relative to their income.

"The Bank has a number of regulatory tools available to it to address systemic risks it identifies and I am cautious about adding further tools," said Joyce.

"The use of macro-prudential tools can be complex and affect different borrowers in different ways. I am particularly interested in what the impacts could be on first home buyers."

The RBNZ was currently gathering information about the DTI levels that borrowers were obtaining and assessing the potential case for the use of debt-to-income limits.

The RBNZ had indicated that public consultation will commence in March and occur during the first half of 2017.

However, the ACT party, a minor party in the governing partnership, said the DTI proposal showed the government was "desperate to be seen doing something about the housing crisis, without considering whether its attempts to curb demand will work, or what other consequences might follow."

"Capping the funds so you can borrow to a ratio of your income would give a systematic advantage to those who can borrow offshore either personally or through family, because the New Zealand government cannot possibly monitor financial transactions worldwide," ACT leader David Seymour said in a statement.

The RBNZ has repeatedly warned that soaring house prices particularly in Auckland, which is home to a third of the population pose a risk to the country's financial stability. Endit