If you’re looking to buy a home in New Zealand, you’ve probably heard about debt to income ratios. Since 1 July 2024, the Reserve Bank of New Zealand (RBNZ) has enforced DTI restrictions that limit how much banks can lend relative to your income.
Understanding how these rules work is essential for setting realistic borrowing expectations and planning your path to homeownership.
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If you’re looking to buy a home in New Zealand, you’ve probably heard about debt to income ratios. Since 1 July 2024, the Reserve Bank of New Zealand (RBNZ) has enforced DTI restrictions that limit how much banks can lend relative to your income.
Understanding how these rules work is essential for setting realistic borrowing expectations and planning your path to homeownership.
What is a Debt to Income Ratio?
A debt to income ratio (DTI) is a measure that compares your total debt to your total gross (before tax) income. Lenders use this ratio to assess how much of your income is committed to debt repayments and whether you can comfortably take on more borrowing.
In New Zealand, there are two ways DTI is used:
- DTI as a multiple (RBNZ restrictions): This is your total debt divided by your annual gross income, expressed as a number like 5 or 6. For example, if you earn $100,000 per year and have $500,000 in total debt, your DTI is 5.
- DTI as a percentage (affordability assessments): This is your monthly debt payments divided by your monthly gross income, expressed as a percentage. Lenders use this to assess whether you can afford repayments.
Current DTI Restrictions in New Zealand
The RBNZ introduced DTI restrictions on 1 July 2024 to reduce the risk of borrowers taking on more debt than they can handle. These rules work alongside the existing loan to value ratio (LVR) restrictions.
The current DTI thresholds are:
Owner-occupiers: Borrowing above 6 times your annual gross income is considered high DTI
Property investors: Borrowing above 7 times your annual gross income is considered high DTI
Banks aren’t banned from making high DTI loans, but they’re limited to 20% of their new lending. This means banks can still approve some loans above these thresholds, but most borrowers will need to stay within the limits.
How to Calculate Your Debt to Income Ratio
To work out your DTI ratio under the RBNZ framework:
- Add up your total annual gross income (before tax) from all sources
- Add up your total debt, including your proposed new mortgage, existing mortgages, personal loans, car loans, student loans, and credit card limits
- Divide your total debt by your total income
Example:
Sarah and Tom want to buy their first home. Together they earn $140,000 per year (gross). They have a $15,000 car loan, Tom has a $10,000 student loan, and Sarah has a credit card with a $5,000 limit. They want to borrow $750,000 for their home.
Total debt = $750,000 + $15,000 + $10,000 + $5,000 = $780,000
DTI ratio = $780,000 ÷ $140,000 = 5.57
Because their DTI is under 6, Sarah and Tom would not be considered high DTI borrowers as owner-occupiers. However, if they wanted to borrow $850,000 instead, their DTI would be 6.29, which exceeds the threshold.
What Counts as Debt in Your DTI Calculation?
When calculating your DTI, lenders will include:
- Your proposed new mortgage
- Any existing home loans
- Personal loans
- Car loans and hire purchase agreements
- Student loans
- Credit card limits (not just the balance owing)
- Overdraft limits
Important: Banks look at your credit card limit, not your current balance. If you have a $10,000 credit card limit but only owe $500, the full $10,000 is counted in your DTI calculation. Reducing or closing unused credit facilities before applying for a mortgage can improve your DTI position.
DTI Exemptions: When the Rules Don’t Apply
Certain types of lending are exempt from DTI restrictions:
New builds: Loans to purchase newly constructed homes or build your own home are exempt. This is designed to encourage new housing supply.
Refinancing: If you’re refinancing an existing mortgage without increasing the loan amount, DTI restrictions don’t apply.
Bridging finance: Short term loans to bridge the gap between buying and selling properties are exempt.
Kainga Ora loans: Government-backed First Home Loans are exempt from DTI restrictions.
Property remediation: Loans for essential repairs like fixing a leaky home are exempt.
If you’re a property investor considering new builds, these exemptions can provide significant borrowing flexibility compared to purchasing existing properties.
Current LVR Restrictions (Updated December 2025)
DTI restrictions work alongside loan to value ratio (LVR) restrictions. From 1 December 2025, the RBNZ eased LVR settings:
Owner-occupiers: Banks can make up to 25% of new lending to borrowers with deposits under 20% (up from 20%)
Investors: Banks can make up to 10% of new lending to borrowers with deposits under 30% (up from 5%)
The RBNZ has said that having both DTI and LVR restrictions in place allows each tool to be set slightly less restrictively than if only one was in use.
DTI as a Percentage: What Banks Look For
Beyond the RBNZ’s DTI multiple restrictions, banks also assess your affordability using a percentage-based DTI calculation. This looks at your monthly debt payments as a proportion of your monthly gross income.
To calculate this: (Total monthly debt payments ÷ Gross monthly income) x 100 = DTI percentage
General guidelines:
|
DTI Percentage |
What It Means |
|
35% or less |
Generally considered a healthy debt load. You’re likely managing debt well and have room for unexpected expenses. |
|
36% to 49% |
May be acceptable but could limit your borrowing options. Some lenders may require additional documentation or offer less favourable terms. |
|
50% or more |
Traditional banks may decline your application. However, non bank lenders may still be able to help depending on your circumstances. |
How to Improve Your Debt to Income Positioning
If your debt to income ratio is too high to qualify for the loan you need, there are several strategies that can help:
Reduce existing debt: Pay down personal loans, car loans, or credit card balances before applying.
Close unused credit facilities: Cancel credit cards you don’t use or reduce your credit limits.
Increase your income: Consider additional work, negotiate a pay rise, or explore ways to increase household income.
Save a larger deposit: Borrowing less means a lower DTI ratio.
Consider a new build: New construction is exempt from DTI restrictions, giving you more borrowing flexibility.
Explore non bank lenders: If you exceed the DTI thresholds, non bank lenders aren’t subject to the same restrictions and may be able to help.
At OneStop Financial Solutions, we have access to a range of non bank lending options that can help borrowers who don’t fit within standard bank criteria.
Non bank loans typically have higher interest rates, but they can be a useful stepping stone to get you into the property market. Once your financial position improves, whether through building equity, increasing income, or paying down debt, you may be able to refinance to a traditional bank loan.
Frequently Asked Questions
How do I calculate my debt to income ratio in New Zealand?
For the RBNZ DTI restrictions, divide your total debt (including the proposed mortgage) by your total annual gross income. For example, $600,000 total debt divided by $100,000 income equals a DTI of 6.
Is rent included in DTI calculations?
No, rent payments are not included in DTI calculations because rent is not considered a debt. DTI calculations focus on debt obligations like loans and credit facilities.
What DTI do I need for a home loan in NZ?
For owner-occupiers, a DTI of 6 or below is generally required. For property investors, the threshold is 7 or below. Banks can approve some loans above these limits (up to 20% of their lending), but most borrowers will need to stay within the thresholds.
Are student loans included in DTI?
Yes, student loans are included in your total debt when calculating your DTI ratio.
Can I still get a mortgage if my DTI is too high?
Potentially, yes. Banks can still approve some high DTI loans within their 20% limit. If banks can’t help, non bank lenders may be an option as they aren’t subject to the same rules.
How do DTI and LVR work together?
LVR restrictions focus on deposit size (reducing potential losses if you default), while DTI restrictions focus on your ability to keep making repayments (reducing the probability of default). You’ll need to meet both sets of requirements to get a loan from a bank.
What’s the ideal DTI for debt consolidation?
Lenders typically prefer a percentage-based DTI under 36% for debt consolidation loans. Each lender sets their own criteria, so it’s worth speaking to a mortgage adviser about your options.
Need Help Understanding Your Borrowing Options?
The DTI rules can feel complicated, but you don’t have to navigate them alone. At OneStop Financial Solutions, we can assess your situation, calculate your DTI position, and find the right lending solution for your circumstances, whether that’s through a traditional bank or a non bank lender.
Give us a call on 021 022 17130 or complete our contact form to chat about your options.
