The Reserve Bank has put out some estimates, so let’s have a look.

If an investor owns one investment property and DTIs were not on the horizon, the Reserve Bank thinks they would be able to buy another five investment properties over the next 10 years. Once DTIs come in that number goes down to three in the Reserve Bank’s estimation.

The new rules will slow some investors down, but not all investors will hurt the same.

New builds are exempt. If an investor buys a new build they get to stick with the old rules, allowing them to build a property portfolio faster ... the Reserve Bank’s estimates suggest an investor could grow a portfolio at almost twice the speed.

House prices

However, DTIs will stop some people from borrowing. The banks will say “no”.

Opes Partners managing director Andrew Nicol says if people can’t borrow as much, then house prices shouldn’t rise as fast, particularly during property booms. That’s because high DTI lending often happens during booms when interest rates are lower.

“The Reserve Bank’s new rules will even out house price growth, making the market more consistent. That’s a good thing, because there shouldn’t be the big boom and bust of the past four years,” he says.

House prices will still go up ... it will just happen more smoothly.

House prices in countries that have implemented DTIs show that in all three cases they have continued to climb. The Reserve Bank is forecasting New Zealand’s property prices will rise by about five per cent a year over the long term.

The central bank is setting the rules. It recently released a new house price forecast, estimating prices will rise 5.4 per cent next year and 5.8 per cent in 2026, rather than the 6-7 per cent of the past. And that’s what he’s been telling investors to plan on for years.

Mortgage rates

The good news is DTIs will have no impact when they are introduced.

“It’s not the DTIs that will stop people from getting a mortgage. It’s the high interest rates.

The banks are already scrutinising mortgage applications at about a nine per cent interest rate.

Effectively, borrowers can’t get a mortgage higher than five to 5.5 times their income now and the new rules are set six times income for home buyers and seven times for investors.”

DTIs are set above banks’ existing lending criteria, and all borrowers are well below the Reserve Bank’s limits.

“Borrowers are basically driving at 50 kilometres an hour in a 100-kilometre zone,” Nicol says. “The rules will have no impact.”

So, what’s the point of the new rules? He says they are really to stop the rush of Covid lending from happening again.