The DTIs, which limit the amount that can be borrowed relative to income, have been well identified as a new hedge against financial risks arising from a booming real estate market and high household debt.
From July 1, banks will be limited to no more than 20 percent of new loans to owner-occupiers with a DTI ratio of more than 6, and no more than 20 percent of new investor loans above a DTI of 7.
That means most owner-occupiers with an income of $100,000 could borrow $600,000 and investors could borrow $700,000.
At the same time, the RBNZ is relaxing the loan-to-value ratio, which has limited the amount of low-deposit lending by banks.
Deputy Governor Christian Hawkesby said the two measures were complementary and would reduce risks to the financial system.
“LVRs focus on the impact of defaults by reducing the amount of potential losses in the event of a housing market downturn. DTIs reduce the likelihood of default by focusing on borrowers' ability to continue repaying debt.
“Both act as guardrails and reduce the build-up of risky loans in the system.”
The revised LVR limits will be relaxed to allow for a greater number of low deposit borrowers.
Hawkesby said the limits are designed to give banks the flexibility to use discretion and manage complex cases.
A just-released report from real estate research firm CoreLogic says the debt-to-income ratio will eventually become a major factor in the market as mortgage rates fall, slowing the speed at which real estate investors can grow their portfolios, especially in more expensive areas.