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A full cost-benefit analysis on Debt-to-Income (DTI) limits and public consultation will be conducted by the Reserve Bank before any decision is made on the potential use of the macro-prudential policy tool, Finance Minister Steven Joyce says.

“I have discussed DTIs with the Reserve Bank Governor, who remains concerned about the levels of debt in some households in the context of recent increases in house prices,” Mr Joyce says.

“I have decided that, consistent with good regulatory principles, a full cost-benefit analysis and consultation with the public should occur before I consider whether to amend the Memorandum of Understanding (MOU) on Macro-Prudential Policy.”

The Finance Minister and the Governor have signed an MOU that governs the use of macro-prudential tools. This MOU sets objectives for and requires accountability around the use of the tools. The introduction of DTI limits would require that this MOU be amended. 

Debt-to-income limits are designed to regulate the amount of debt that a mortgage borrower can access relative to their incomes.

“The Bank has a number of regulatory tools available to it to address systemic risks it identifies and I am cautious about adding further tools.

“The use of macro-prudential tools can be complex and affect different borrowers in different ways. I am particularly interested in what the impacts could be on first home buyers.”

The RBNZ is currently gathering information about the DTI levels that borrowers are obtaining and assessing the potential case for the use of debt-to-income limits.

“Given the novel nature of a DTI tool in New Zealand and the fact there are a number of possible policy actions the RBNZ could take, it is important that the costs and benefits of the different policy options be adequately and rigorously explored.”

The Bank has indicated that public consultation will commence in March and occur during the first half of 2017.

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