Long heralded and much debated, debt-to-income ratio changes come into effect today. The restrictions will apply to new lending for investors and owner-occupiers and will be used to assess borrowers’ ability to meet debt repayments.

From today, any borrowing over seven times gross income will be considered high DTI for investors. But as banks already “stress test” any application at the equivalent of a nine per cent interest rate, which means you can’t really get a mortgage higher than around five per cent of your income anyway.

DTIs will not apply to new builds, property remediation, refinancing (where the new loan value doesn’t exceed the original loan value or bridging finance).

“Nothing changes today,” says Peter Norris, managing director of Opes Mortgages. “Interest rates would have to fall by around two per cent before borrowers will be affected.”

LVR loosened

Another change place today is around loan-to-value ratios (LVRs). LVRs will be loosened to allow five per cent of investor lending to borrowers with an LVR greater than 70 per cent.

This may be good for investors with existing stock who are looking to borrow for renovations, but most of the commentary around the change predicts little change to the housing market due to this.

Bright-line reversal

Bright-line test goes back to two years today, after the previous government positioning it at 10 years. This may lead to some stretched investors putting homes on the market if they brought in a flush of excitement when interest rates were lower.

If they sell from today, they are exempt from having to pay what in essence was a capital gains tax by a different name – and we may see the number of houses on the market sneak up in the next few months, but time will tell.

Sue Harrison, president of the New Zealand Property Investors’ Federation, says she’s not aware of investors who are going to be selling due to this.

“But our members are older, more established, long-term investors,” she says. “Some people who were investing to make a quick buck when interest rates were low may be in a situation where they are forced to sell due to their financial situation.”