Bolton changes his mind on DTIs, believes LVRs should be lowered

Veteran mortgage broker John Bolton believes debt-to-income (DTI) ratios for loan control aren’t so bad after all.

Wednesday, March 22, 2023, 6:39 am

He also believes that loan-to-value (LVR) limits should be gradually lowered.

Bolton was making these comments in an interview for GRTV.

The Reserve Bank is currently working on the DTIs, which they want to have ready by next year in case they are needed to curb any future rise in house prices.

They would join the LVRs in the anti-inflationary mechanism bank toolkit.

The recent fall in house prices has taken some of the urgency out of the DTI programme, but Bolton still sees merit in them after previously opposing them.

He says that DTIs are a constant measure that ignores fluctuating interest rates and is therefore more suited to the fact that real estate purchases are a long-term thing.

“I have been in my house for more than 20 years.”

Bolton’s view is that a DTI regime would smooth the rise and fall of interest rates and the consequent rise and fall of stress test levels. They would also more accurately reflect people’s ability to pay for a long-term project, like buying a house.

They could also avoid the pain of dealing with a stress test rate, which has hit 8.5-9% in response to real mortgages hitting a median of 6.95% for two-year fixed loans.

In his comments, Bolton also suggested that LVRs may be past their expiration date.

“They were appropriate when house prices were too high,” he said.

“But they’ve done their job and they’ve done it well, because otherwise we would have had a lot more buyers with negative equity positions.

“But because banks have a 10% rate limit, they only approve the bank’s top customers and don’t pre-approve, you have to have a house under contract, so the rules limit people’s ability to buy a house. home. .”
Bolton said it would be appropriate to remove LVR restrictions from first-time homebuyers, but perhaps they should stay in place for property investors.

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