First-home buyers borrowing 4-5 times pre-tax earnings

Most New Zealand first-home buyers are borrowing from four to five times their pre-tax earnings, according to latest debt-to-income figures released by the Reserve Bank.

The DTI figures show that one in three first-home buyers who took out mortgages in June had borrowings in excess of five times their household gross income.

For those buying in or around Auckland, one in every two buyers had debt equating to more than five years of their salaried income.

The DTI measure, expressed as a ratio between total borrower debt and gross income, is used to measure affordability and ability of borrowers to service their property debt. ''All else equal, a borrower with a higher DTI ratio would have a smaller buffer to withstand an adverse shock to their serviceability - for example, a partial loss of income or higher interest rates,'' the report noted.

First-home buyers in Auckland accounted for $420 million worth of mortgages in June, of a total of $928 million across the country.

The DTI for June 2019, showed the average gross income of first-home buyers was $116,000 per year, compared with $132,000 for other owner occupiers. However, there was a variance across DTI bands, from $133,000 to $105,000 for those with DTIs of under three to above five respectively.

Reserve Bank head of data and statistics Steffi Schuster said the statistics provided an insight into the ability of homeowners to service their mortgages.

''By comparing DTI figures with loan to valuation data, we can better understand risks from households with a combination of large loans relative to the value of their property and large loans relative to their income.''

New Zealanders borrowed a total of $5.6 billion to buy property in June.

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