Debt to Income (DTI) Ratio

The Reserve Bank of New Zealand is responsible for upholding the stability of the financial system and this is one way to ensure that banks do not take on too much risk.

Starting from 1st July 2024, banks will be required to adhere to new debt-to-income (DTI) restrictions. These restrictions will be applicable to new lending for residential homes in New Zealand, both for owner-occupiers and investors.

DTI is a measure used by lenders to assess a borrower’s ability to meet their debt repayments. A DTI ratio looks at the amount of debt the borrower has, relative to their gross (before tax) income.

Debt-to-income limits:

• For owner-occupiers: 6 times the gross income (pre-tax)
• For investors: 7 times the gross income (pre-tax)

Banks have a limited allowance to lend to customers who fall outside the set limits. However, on an individual basis, borrowers with high DTI may still be considered.

Some common exemptions of the DTI rules.

• Kāinga Ora loans
• Refinancing a mortgage where the new loan value does not exceed the original loan value.
• Portability, which involves retaining your home loan when selling by transferring the mortgage from the old property to the new one, including moving the existing loan to a new bank.
• Construction loans for newly built homes from a developer within 6 months or KiwiBuild program participants.

Blue Water Mortgages, New Plymouth, Taranaki.