Banks get ready to impose debt-to-income borrowing limits to protect homebuyers as interest rates and mortgagee sale numbers rise
A five-bedroom house at 55 Cliff Rd, above the elegant Auckland suburb of St Heliers, was this week listed for mortgagee sale by Barfoot & Thompson.
Tenders close on Friday at midday.
Auckland Council assigned the house a rateable value of $9.9m last year, with a hefty rates bills to match: $19,628 this year.
It's the home of Tommy Xianzhen Huang, the owner of property development company Treasure Plus Ltd.
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That company has run into significant trouble due to a slowdown in house sales, rising construction costs, and soaring interest rates.
As well as Huang's home, the Treasure Plus receivers are trying to sell a $9.2m site in Mission Bay and a $4.5m empty lot in Māngere Bridge and they have written to buyers who have pre-purchased apartments in the 82-unit Dawn Park development in Te Atatū.
Buyers were already worried about progress on Dawn Park. One young couple told Newshub last year they were worried their life savings were gone.
"We feel absolutely stupid. We haven't had any proper response from them since May, so half a year. We feel powerless." – Dawn Park apartment buyers
They had purchased one of the apartments off the plans in July 2021, expecting to have keys in hand a year later. But they had watched as materials were removed and the building site was stripped down to bare timber framing.
"We feel absolutely stupid," they said. "We haven't had any proper response from them since May, so half a year. We feel powerless."
Yesterday, insolvency practitioners Tony Maginness and Daniel Zhang were appointed administrators by Vincent Capital Ltd, as the financier tries to recover the money it's owed.
In its financial stability report yesterday, the Reserve Bank warned that more borrowers are under pressure on their debt obligations. For now, rates of non-performing mortgages and the number of mortgagee sales remain low – but they've been increasing in recent months.
"We expect an increasing share of borrowers will face significant debt servicing stress," the report says.
Early-stage mortgage arrears have increased over the past six months and have now surpassed the levels seen at the start of the pandemic.
"The debt-to-income ratio can be put in place, but that doesn’t mean it will be binding, initially." – Adrian Orr, Reserve Bank Governor
Retail banks have been ordered to set in place systems so they can apply debt-to-income restrictions from the middle of next year. With interest rates still rising, DTI limits are intended to protect homebuyers from taking out bigger loans than they can afford to service.
Reserve Bank Governor Adrian Orr says DTI restrictions on banks' mortgage lending could be deployed next year, but need not be made mandatory immediately. In other words, they could be treated as a regulatory guideline, rather than a cast-iron rule.
"The debt-to-income ratio can be put in place, but that doesn’t mean it will be binding, initially," Orr says.
