A lower DTI cap of six would be expected to have more impact on moderating house prices and dampening investor demand, but would also have higher efficiency costs and could prevent a small number of first-home buyers from entering the market.

However, the addition of the debtto- income (DTI) tool to the Reserve Bank’s macro-prudential toolkit appears unlikely this year.

For DTI limits, the bank estimates a lead time of six months or more will be needed to consult on design and calibration and for industry to implement the necessary systems.

It considers a DTI limit will be a complementary tool to the mortgage loan-to-value ratio (LVR) restrictions to further dampen investor demand for residential housing.

“The impact of DTI restrictions is likely to be sustained over time to a greater degree than LVR restrictions. This is arguably well-aligned with the objective of house price sustainability,” says the Reserve Bank.

Finance Minister Grant Robertson has agreed to the Reserve Bank adding debt serviceability restrictions in general terms to its MoU with Treasury to allow flexibility to design, calibrate and adjust the tools as required to maximise its effectiveness. He retains the view the development and design should apply only to investors.

Reserve Bank governor Adrian Orr says the bank believes DTI limits have some advantages over other debt servicing tools, particularly in moderating house price cycles and dampening investor demand.

Another idea the RBNZ floats is differentiating the caps by borrower group, as is the case with the existing LVR restrictions.

For example, the DTI cap could be set at seven for owner-occupiers and six for investors. DTI caps could also be combined with a speed limit (which could be differentiated by borrower group), allowing banks to allocate credit to those they judge as better high-DTI borrowers.

The RBNZ also emphasises the point that if debt serviceability restrictions are added to the MoU, it won’t necessarily implement them straight away.