More tools will soon be available to the Reserve Bank as it works with the Government to hammer the out of control housing market.
The Finance Minister has agreed to allow the central bank to introduce “debt serviceability” restrictions to its toolkit.
And the Bank’s preferred option are debt to income limits – those are calculated by measuring the ratio of a borrowers’ total debt in proportion to their income.
They are seen as stopping borrowers from taking on more debt than they can afford.
Governor Adrian Orr has spoken publicly about his concerns about the amount of debt many Kiwis were getting into as they tried to enter the housing market.
Orr had also considered restricting interest only loans, but today says the preferred option is debt to income limits.
Investors remain the target for the Bank and the Government.
Analysis released shows any restrictions would impact investors more powerfully, with limited impact on first home buyers.
“Although we do not have a remit to target house prices directly, our financial policy tools can help to ensure prices do not deviate too far from sustainable levels,” Orr says.
“We believe that a ‘sustainable house price’ is the level that the price would be expected to move towards over several years, reflecting the underlying drivers of supply and demand for housing, including population growth, building costs, land supply, and interest rates.”
The limits will be alongside the current loan to value restrictions, which may still be tightened in the coming months.
But don’t expect them to be introduced this year – further work, including a full consultation process is still to be carried out.
Finance Minister Grant Robertson says he agreed to the new restrictions "on the condition that this should not impact on first home buyers".
"I retain the view that the development and design of any debt serviceability tool such as a debt-to-income ratio limit should apply only to investors."