The Reserve Bank made some changes as of May 28th, 2024 regarding Debt-to-Income ratios (DTI's) and Loan-to-Value ratios, which is the percentage of a property's value that the bank can lend up to.
These updates are pretty important for both homeowners and investors, so let's dive right in!
Debt-to-Income Ratio Rules: What to Expect
Starting from the 1st of July, the Reserve Bank is implementing the Debt-to-Income (DTI) ratio rules. For owner-occupiers, this means you can't borrow more than six times your annual income. For investors, the limit is set at seven times your annual income. While this might sound restrictive, in reality, it won't bring significant changes for most people.
Banks have already integrated these DTI considerations into their serviceability calculations. In fact, they often apply even stricter criteria than the new DTI rules. Therefore, the borrowing capacity for most individuals will remain largely unaffected. This is good news, especially as interest rates start to decline and serviceability calculations are adjusted accordingly.
The primary goal of introducing the DTI rules is to ensure that people have enough income to service their debts. It's a measure by the Reserve Bank to promote financial stability and responsible lending practices.
Positive News for First-Time Buyers and Investors
In addition to the DTI rules, there are some welcome changes for first-time buyers and investors. The Reserve Bank has increased the threshold for banks to lend to those with less than a 20% deposit. This threshold has risen from 15% to 20% of the banks' overall lending book, making it easier for first-time buyers to enter the property market.
For investors, the deposit requirement has been reduced from 35% to 30%. This reduction is significant, as it allows investors more flexibility and potentially increases their borrowing capacity.
The Big Picture
Overall, these changes are fairly positive and supportive of both homebuyers and investors. While the DTI rules are a new tool, their immediate impact will be minimal especially while rates are still relatively high.
The adjustments to loan-to-value ratios (LVRs) are particularly beneficial, making it easier for people to secure mortgages and invest in property.
Can we help you?
If you have any questions about how these changes might affect you, feel free to reach out to us at My Mortgage. We're here to help you understand your situation and plan accordingly.
We can give personalized advice and a bit more information around how these changes might impact you.
Book a call at the link below - we look forward to hearing from you!