RBNZ to Add Debt-to-Income Restrictions to Policy Tools --Update

(Adds details)

By Stephen Wright

WELLINGTON, New Zealand--The Reserve Bank of New Zealand will add debt-to-income limits for mortgage lending to its financial policy tools as part of a new remit to help tame fast-rising house prices.

The RBNZ said on Wednesday that Finance Minister Grant Robertson had agreed in principle to the central bank's use of "debt serviceability restrictions" when trying to contribute to sustainable house prices.

As part of the agreement, the use of debt-to-income restrictions would need to avoid a negative effect on first-time home buyers as much as possible, the central bank said.

New Zealand home prices have risen rapidly in the past year, fueled by record-low interest rates and tight supply. The median sale price in May was 32% higher than a year earlier.

The increases have intensified a problem of home ownership becoming out of reach for some after years of price gains that have outstripped growth in incomes.

The government earlier this year said it will remove tax advantages for property investors and the RBNZ has reimposed loan-to-value restrictions on mortgage lending. Analysts say those measures have likely contributed to a recent dip in the number of houses sold monthly, but price increases have yet to show signs of cooling.

RBNZ Gov. Adrian Orr said the central bank's belief is that a sustainable house price is a level that prices would be expected to move toward over several years.

A debt-to-income limit would complement loan-to-value restrictions and "would impact investors most powerfully while having limited impact on first home buyers," the central bank said.

The loan-to-value restrictions reduce losses to banks if borrowers default while debt-to-income limits would reduce the likelihood of mortgage defaults, it said.

Write to Stephen Wright at stephen.wright@wsj.com


  (END) Dow Jones Newswires
  06-15-21 1932ET
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