LVR and DTi, what and why?

Written By Kim Manunui

The Reserve Banks tool kit includes macroprudential tools such as Loan to Value Ratio ( LVR ) and Debt to Income ( DTi ) restrictions, designed to maintain financial system stability. These rules limit how much buyers can borrow relative to a property's value, helping to prevent risky lending and housing bubbles.

Loan to Value Ratios ( LVR’s ) were first introduced in Oct 2013 in response to rapid house price growth and sharp increases in low deposit loans, having an immediate effect in dampening house price inflation. Removed in April 2020 in response to Covid stimulus measures then reinstated in Match 2021 to stem the then sharp correction taking place.

Mostly they are there to support stability in the housing market and reduce the risk of sharp corrections while providing a buffer in the event of a downturn.

Set at 80% for owner occupied and 70% for investors, there are exemptions for the likes of First Home Buyers who can typically borrow up to 95% and construction loans at 90%. Just to add confusion, there are also speed limits that allow 20% of owner occupier and 5% of investment property loans able to be written above those limits, allocated as available at time of application.

Debt to Income rations ( DTi’s ) on the other hand place a limit on how much total lending you can have against your income, set at 6 x income for owner occupied and 7 times income for investors, it includes all lending so say you have a $100k income, you could have 6 x that or a $600k mortgage but if you also have a $20k car loan and $5k credit card limited at time of application you could have a $575k mortgage. A 20% speed limit also applies.

Ultimately they work together to minimise financial stress in the housing market.

Hit the contact button below for further enquiries on that.

Kim Manunui

Hi, I’m Kim and I work with a great team to help individuals, as well as small and not so small businesses get their message, product and services to the world using digital media and creating wonderful websites that don’t cost the earth.

I was born in Canada, and grew up around Vancouver and the mountains of British Columbia. My love of pristine environments led me to New Zealand and eventually to the mountains, lakes and rivers of the central North Island which is home. My family’s heritage is here, and it’s from here that Korio traverses the planet.

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And I say ‘we’ because I work with an awesome group of talented people who I gather together as required to complete a project.  Whatever your business, not-for-profit or individual needs are we gather the best team to get the job done.

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If you have an audience and market to reach, we can make that happen. Creative design, words that work and smart behind the scenes stuff that cuts through the online noise. We’ll design your website and then build it. We’ll manage the content as well as all your hosting needs. We can handle your online advertising so you get noticed,
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Understanding the Role of the Reserve Bank