TLDR & TLDL: So how much do you think you could borrow if you were limited to a debt to income multiple of six and had to first prove you had enough disposable income to handle an 7% mortgage rate?
Those are the limits the Reserve Bank could impose early next year for the rate floor and later next year for the DTI limit. The answer is at least half of current lending would be stressed with those rules.
These details and more are in my analysis below the paywall of the Reserve Bank’s consultation paper on new debt serviceability tools released yesterday. The short version: first home buyers will be hit first and hardest by the rate floor, but will fare better than expected if, as the Reserve Bank prefers, it is then swapped for a DTI limit, which the banks say they would need nine months to implement.
Elsewhere in news breaking this morning:
ANZ joined Kiwibank and BNZ yesterday in restricting access to high LVR lending. The country’s biggest mortgage lender said it was “pausing” some low-deposit applications. BNZ stopped new loans for borrowers with a deposit of less than 20% on Friday and last week Kiwibank withdrew pre-approvals for some high LVR loans (Stuff);
oil prices rose 2% despite the US, UK, Japan, South Korea, India and China pledging to release millions of barrels from their oil reserves – traders had expected more and OPEC responded with a threat to cut new production;
US tech stocks fell about 1.4% in morning trade and the US 10 year bond yield rose to a one-month high of 1.64% on expectations the reappointment of US Federal Reserve Chair Jerome Powell signalled faster and larger interest rate hikes from the world’s biggest central bank from mid 2022;
Germany’s Covid infection rate surged to a record high overnight and the United States advised against travelling there, as fourth waves of Covid crash through Europe as it eyes new lockdowns for winter and slower economic growth; and,
US President Joe Biden, 79, pledged to run for a second term in 2024 after a fall in his approval ratings and musing by other Democrats whether he would (or should) run again.
I’m watching out for an expected 25 basis point hike in the Reserve Bank’s OCR at 2pm and will put out my analysis to paid subscribers by 3pm. I’ll also be in the news conference. I welcome your suggestions for questions and thoughts in the comments below.
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