Next phase of RBNZ review likely to assess DTIs

RBNZ announced the details of the second phase of the Reserve Bank Act review this afternoon. It will look at a wide range of items including the bank's governance, supervision and enforcement, crisis management, and funding.

Yet the mention of the Reserve Bank’s macro-prudential toolkit will raise alarm for mortgage advisers. Over the past few years, figures within the Reserve Bank have called for the bank to look at new ways of assessing borrowers’ ability to repay loans. Suggestions have included controversial debt-to-income ratios, or DTIs.

DTIs has been widely dismissed as a crude tool that does not accurately reflect a customer’s ability to repay a loan. Used on their own, they fail to take into account the size of a borrower’s deposit, for example.

New Zealand's major banks say their serviceability assessments are up to the task. Advisers say banks have moved to tighten servicing criteria over the past 18 months, partly due to the threat of new regulation, such as DTIs, to curb lending.