Feature: Advisor Reaction

Advisers take aim at BNZ DTIs

Criticism has been pouring in after the BNZ announced new restrictions on borrowing through the broker channel.

BY ERIC FRYKBERG

The bank is limiting the amount of money people can borrow under a debt to income ratio (DTI) setting it at six times the borrower’s income.

It is making these changes to brokerarranged mortgages initially, but is looking at extending the policy to 'walk in' mortgages as well.

The move has led to anger from a number of mortgage advisers, who say it is unfair.

Meanwhile other banks appear to be keeping their powder dry, pending any move from the Reserve Bank.

Westpac acting chief executive Simon Power says the bank has no plans to follow BNZ.

The bank says “currently we don’t directly use DTI ratios in our affordability measurement across mortgage applications.”

“However, we do calculate DTI to monitor overall trends and concentrations in our portfolio. This lets us adjust other components of our affordability measurement to limit our exposure to very high DTI levels and meet our responsible lending obligations to customers.”

ANZ appeared to be waiting for the Reserve Bank to act.

“We’re happy to work in with the regulations and expectations of the RBNZ, noting that all that’s currently proposed is that debt to income will be part of the regulator’s toolkit.”

ASB says it already uses DTI. “In certain lending situations, particularly in the current low interest environment, we think it is prudent to consider debtto-income.”

Kiwibank simply says it is a responsible lender and takes its obligations seriously.

“To ensure borrowers can meet their obligations, we use serviceability calculators which includes income and expenses.”

BNZ has explained its move by saying it took its obligations seriously and was looking at the overall level of debt its customers take on to ensure they are in a secure position with rising interest rates.

However, a number of brokers have shown little patience with the bank's views.

The BNZ was “trying to crush Kiwis buying rentals,” according to Mike Whittaker of Auckland.

“How dare New Zealander’s get rich when they work hard ….. this behaviour does not create great outcomes for New Zealanders,” Whittaker wrote.

There was further criticism from Jason Hurdle of the Lower Hutt firm, Beyond Mortgages.

“DTIs are a very blunt tool and with every mortgage application there are loads of mitigants that apply to the individual deal,” he wrote.

An Auckland broker, Stephen Wilton, said DTIs made no sense when applied to rental properties.

“Clients trying to get ahead and assist the housing shortage by purchasing new houses as investments are now being told they can't – not sure how that helps.”

Another broker, Jeff Royle, said the BNZ appeared to be punishing enterprise.

“BNZ looked at the broker channel and found that more applications were of the nature they were 'concerned' about,” Royle wrote.

“Really? You mean a broker that goes into bat for a client and really pushes the boundaries.”

In response to these matters, the BNZ reiterated its view that it supports moves to make the housing market more sustainable and accessible....and a standalone DTI assessment is one of the tools it uses.

The bank says it has always taken a customer’s existing debts into account, alongside income and expenses, but the DTI test is an additional step to provide more safety and security for borrowers.

The BNZ move has been described as a case of beating the Reserve Bank to the punch by Loan Market adviser Bruce Patten.

He says BNZ is trying to set the multiple of six as a kind of going rate, in the hope that it becomes the generally accepted figure.

The alternative would have been to do nothing and wait for the Reserve Bank to move, and perhaps be stuck with a lower number such as five.

The RBNZ has meanwhile reiterated its concerns while still taking no concrete steps.

“While Loan-to-value ratio (LVR) restrictions have been the main tool we have used to address housing risks, we will soon consult on the merits of implementing debt servicing restrictions to lean against these risks, the bank said in its November financial stability report.

“Meanwhile, we expect banks to be more cautious about high debt-toincome loans given the risks of rising interest rates and to the economic outlook.” ✚