The Reserve Bank of New Zealand’s slow shift to debt to income ratios as a tool for regulating retail bank mortgage lending has stepped up a gear, with the launch of consultation on its proposed settings.  It plans to bring in DTIs but ease the current loan to value ratio (LVR) restrictions. In a news release yesterday, RBNZ deputy governor Christian Hawkesby said the financial stability risks of ‘boom and bust’ credit cycles were significant, so it was important the regulator had appropriate policies to manage them.  “While the LVR tool is aimed at improving the resilience of the financial system by reducing potential losses when households default on their mortgage, the DTI tool is aimed at reducing the probability of a systemic wave of households defaulting,” Hawkesby said. “We believe introducing DTI restrictions will reduce financial stability risks, support house price sustainability, and fill a gap that is not covered by existing policies.  The RBNZ proposes restricting banks to issuing no more than 20 per cent of their owner-occupier residential loans to homebuyers with DTIs greater than six, and no more than 20 per cent of their investor loans to borrowers with DTIs greater than seven. At the same time, it proposes easing the LVR settings to allow 20 per cent of owner-occupier lending to borrowers with an LVR greater than 80 per cent. Such lending is currently capped at 15 per cent of lending. It is also proposing to allow banks to issue up to 5 per cent of their investor lending to borrowers with an LVR greater than 70 per cent.  Consultation will close on 12 March 2024, with a decision expected in the middle of the year.