A vendor's buyer has been declined by a bank because the loan would be high-DTI. The buyer asks whether a non-bank lender faces the same Reserve Bank DTI limits. What is correct?
Correct Answer
D) No; the Reserve Bank's DTI rules apply to bank lending, not non-bank lenders.
The Reserve Bank imposes DTI restrictions on registered banks as part of its macroprudential policy. Its explainer states the DTI rules only apply to bank lending, not non-bank providers. Non-bank lenders still have responsible lending duties under the CCCFA and their own criteria.
Why This Is the Correct Answer
The Reserve Bank's DTI speed limits bind banks; non-bank lenders are outside them.
Why the Other Options Are Wrong
Option A: Yes; every lender in New Zealand must apply the same DTI speed limits.
The Reserve Bank states that the DTI rules only apply to bank lending, not to non-bank providers.
Option B: Yes; the DTI limits are set in the Credit Contracts and Consumer Finance Act.
DTI limits are macroprudential settings the Reserve Bank imposes on banks, not rules in the CCCFA.
Option C: No; DTI limits apply only to investor lending and never to owner-occupiers.
DTI restrictions cover both groups, with a threshold of 6 for owner-occupiers and 7 for investors.
Background Knowledge for Finance
Source: https://www.rbnz.govt.nz/education/explainers/dti
Exam Tip for Finance
LVR and DTI limits are Reserve Bank settings for banks; responsible lending under the CCCFA applies to all consumer lenders.
Common Mistakes to Avoid on Finance Questions
- •Assuming the DTI rules are a law binding every lender.
More Finance Questions
What is the current standard LVR (Loan-to-Value Ratio) restriction for owner-occupier residential property purchases in New Zealand?
What is a key advantage of a revolving credit mortgage facility?
When assessing a mortgage application, which factor is typically given the highest priority by New Zealand lenders?
James has been contributing to KiwiSaver for 4 years and wants to withdraw funds for his first home. His KiwiSaver balance is $45,000, but $15,000 consists of government contributions and employer matching. What is the maximum he can withdraw for his house deposit?
What is the main advantage of a table mortgage compared to an interest-only mortgage?
- → What is the maximum amount a first home buyer can withdraw from their KiwiSaver account for a house deposit?
- → What does LVR stand for in New Zealand mortgage lending?
- → What is the key difference between a table mortgage and an interest-only mortgage in terms of monthly payments?
- → A bank checks how much of a borrower's gross income would go on debt repayments. The borrower earns $80,000 a year, already pays $800 a month on other debts, and the new mortgage would cost $2,200 a month. What share of gross income would the repayments take?
- → Sarah earns $80,000 annually and wants to borrow $400,000. What is her debt-to-income ratio?
- → A property is valued at $600,000 and the buyer has a $100,000 deposit. What LVR would this loan represent?
- → Which of the following is NOT typically considered by banks when assessing lending criteria?
- → How long must a KiwiSaver member have been contributing before they can withdraw funds for their first home?
- → Which type of mortgage allows borrowers to make additional payments that can be re-borrowed later?
- → A couple with a combined income of $120,000 wants to buy their first home for $650,000. They have a 15% deposit. What is their LVR?
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