Debt to Income Caps Recommended

11 May 2017

Debt to Income caps (DTI) have been highlighted in a recent IMF report as an important measure to build resilience in our banks and housing market to protect financial stability.  The Government needs to be willing to give the RBNZ the power to implement these DTI caps, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive Dieter Adam says, “Financial stability remains an issue for our economy, particularly with a rapidly increasing housing market, despite some recent moderation, and high private debt levels.  All parts of the economy are damaged in any financial downturn, especially the tradable sector, such as our manufacturers.

“Loan to Value ratios were a positive step forward in this area by the RBNZ, and adding DTI caps, which have been used in other countries, could help further ensure the quality of debt in the housing sector and increase bank's strength against future financial pressures.

“The IMF’s report on New Zealand stated, “Adding a debt-to-income cap to the macroprudential toolkit would enhance systemic resilience by limiting the risks from growing household indebtedness.”

“It was disappointing that the Minister of Finance removed DTI’s from the Memorandum of Understanding (MOU) earlier in the year. The RBNZ should move forward with their research and consultation of DTI’s and the Minister of Finance needs to add these back into the MOU to allow the RBNZ to implement them.” Said Dieter.