Reserve Bank considering debt-to-income ratio restrictions

The Reserve Bank confirmed in May that it is investigating the growing gap between incomes and house prices, particularly in Auckland. Governor Graeme Wheeler said debt-to-income restrictions could be one of the potential responses to rising house prices.

If these restrictions were introduced, it would mean that Aucklanders would be limited in the amount of money they could borrow to buy a house, based on their annual income. This kind of restriction was used in the United Kingdom, where most buyers could not get a mortgage higher than 4.5 times their annual income.

The Government has said it would consider adopting any recommendations the Reserve Bank made, but stressed it did not want to lock people out of the housing market.

The average house in Auckland was now nine times the average income in the city, compared to a little over five times income across New Zealand, according to Governor Wheeler.

The Reserve Bank will be consulting with the Government about potential responses to house price rises, and stressed that it had not yet decided what action it would take.