DTIs have merit: Bolton

DTIs are currently being worked on by the Reserve Bank, which wants them ready by next year in case they are needed to rein in any future upward rush of house prices.

They would join LVRs in the bank's toolkit of anti-inflation mechanisms.

The recent fall in house prices has taken some of the urgency out of the DTI programme, but Bolton still sees merit in them after earlier opposing them.

Bolton told Good Returns TV DTIs are a constant measure which ignores fluctuating interest rates and is therefore more suited to the fact that real estate purchases are a long-term thing.

Bolton's view is that a DTI regime would smooth over the rise and fall of interest rates, and the consequent rise and fall of stress testing levels. They would also reflect more accurately people's ability to pay for a long term project like buying a house.

They could also avert the pain of dealing with a stress testing rate, which has reached 8.5% to 9% in response to actual mortgages reaching a 6.95% median for two-year fixed loans.

However, another highly experienced adviser, iLender found Jeff Royle disagrees with Bolton.

“Having worked with DTIs for years in the UK they do not work.”

“They are too prescriptive and don't allow for individual living costs or lifestyles. They also take away a lender's ability to make a commercial decision.

“We've never had reckless lending in New Zealand and DTIs are solving a problem that does not exist. “

Bolton also thinks loan to valuation (LVR) limits should be phased down and are moving past their use-by date.

“They were appropriate when house prices were too high,” he said.

“But they have done their job and they did a good job, because otherwise we would have had a lot more buyers with negative equity positions.

“But because the banks have got a 10% speed limit, they are only approving main bank customers and they are not pre-approving, you have to have a house under contract, so the rules are limiting the ability of people to buy a home.”

Bolton said it would be appropriate to pull the LVR restrictions back from first home buyers, but they should perhaps be kept on for property investors.

Royle agrees they should be relaxed to allow Kiwi first home buyers a chance and investors the ability to provide cost effective housing for a growing rental community. ✚