Debt-to-Income Restrictions Set to Tighten Mortgage Access for Borrowers and Investors

Date Published: 28 May 2024

Key Facts

• Debt to income restrictions may make it more challenging for some people to qualify for a mortgage.
• CoreLogic’s report indicates first-time buyers with the ability to service a mortgage will find it easier to buy a house.
• Investors will face tougher conditions with the introduction of debt-to-income restrictions.
• Lower Loan-to-Value Ratio (LVR) requirements are expected to benefit first-time buyers and investors.
• Five percent of new lending will soon be allowed with less than a 30 percent deposit requirement, down from the current 35 percent.
• High mortgage rates and low rental yields remain challenges for investors.
• Interest rates are expected to stay high, and unemployment is forecasted to rise to about five percent by the end of next year.
• Approximately 60 percent of mortgages will need to be refixed at higher rates within the next 12 months.
• The total housing stock is valued at $1.63 trillion, with an overall LVR of about 22 percent.

Article Summary

A recent report by CoreLogic highlights the challenges and opportunities in the New Zealand housing market given the new regulatory changes. Debt-to-income restrictions are predicted to make it harder for some borrowers to qualify for mortgages, significantly affecting investors in high-cost areas. However, first-time buyers who are able to service their mortgages will find it easier to enter the market. These regulatory changes are expected to differentially impact various segments of the market.

The easing of Loan-to-Value Ratios (LVRs) will potentially benefit first-time home buyers and investors. The new allowance will permit five percent of new lending with less than a 30 percent deposit, a reduction from the current 35 percent deposit requirement. This easing could help investors unlock more equity across their portfolios, although they still face challenges from high mortgage rates and low rental yields.

The Reserve Bank’s latest monetary policy forecast reflects an economic climate where interest rates would remain elevated and unemployment is expected to rise to around five percent by the end of the next year. This forecast presents potential difficulties for homeowners, particularly as a significant proportion of mortgages will need to be refixed at higher rates within the coming year. Additionally, there is a substantial equity buffer in the housing market, indicated by the valued housing stock of $1.63 trillion and a relatively low overall LVR of about 22 percent.

While changes to lending rules might complicate the landscape for aspiring property owners and investors, the easing of some restrictions may offer opportunities for those prepared to navigate a complex market.

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