Owner-occupier debt-to-income ratios trending down

Monday 12th August 2019

The number of mortgage borrowers with debt-to-income ratios greater than five has fallen to 31 percent in June from 37 percent two years earlier, according to new data the Reserve Bank is collecting.

A slightly higher percentage, 33 percent, of first-home buyers had DTIs above five times while almost half of first-home buyers in Auckland had DTIs above five – first-home buyers most commonly borrow between four and five times the size of their income. The measure used is income before tax.

The Reserve Bank began trying to collect the data from banks in 2016 but found that banks had tended to cease collecting data on incomes as soon as the debt servicing costs of a particular loan had been met.

Head of data and statistics, Steffi Schuster, says the central bank had conducted “gap analysis” and so began work on collecting the data from the banks to provide “an insight into the ability of homeowners to service their mortgages.”

The Reserve Bank is on record as wanting to add a DTI macro prudential tool to its tool kit for managing financial stability.

But Toby Fiennes, head of financial system policy and analysis, says a government decision on that was pushed aside by the review of the Reserve Bank Act – the second stage of the review is being consulted on with submissions closing on Friday.

While the central bank would still like to have a DTI tool for future use, it would be unlikely to use it in current market conditions.

“We don’t see the risks in the housing market as being extreme enough levels,” Fiennes says.

The new data series measures only the incomes of owner-occupiers. Schuster says the income of residential property investors “is much harder to interpret and the data quality isn’t at the level we would like it to be.”

But it includes all sources of income from salaries and wages to self-employment income and any other sort of income such as rents.

The data showed the average annual gross income of first-home buyers - households - in June was $116,000 compared with $132,000 for other owner-occupiers. The data includes both main residences and holiday homes.

Owner-occupiers account for 73 percent of the $265 billion banks have lent on residential mortgages.

In June, banks lent about $900 million to first-home buyers and $2.4 billion to other owner-occupiers.

The data will be published quarterly.

(BusinessDesk)

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