Feedback Sought On Design Of Debt-to-Income Restriction Framework

We are seeking feedback on the design of the regulatory framework for Debt-to-Income (DTI) restrictions.

In November 2021 we sought feedback on the merits and potential design of two types of debt serviceability restrictions on residential mortgage lending — restrictions on DTI ratios and a floor on the test interest rates used by banks in their serviceability assessments.

Our assessment found that DTI restrictions were likely to be more effective than test rate floors in supporting financial stability and sustainable house prices. DTI restrictions also have less of an impact on access to credit for first-home buyers, and in April 2022 we announced that we would proceed with getting this tool operationally ready.

Debt serviceability restrictions are a macroprudential policy tool — used to support financial stability and sustainable house prices by reducing the risk of ‘boom-bust’ credit cycles that amplify downturns in the real economy. They complement loan-to-value ratio (LVR) restrictions on mortgage lending, another macroprudential tool the Reserve Bank has been using in recent years.

We are now seeking feedback on the technical design aspects of the regulatory framework for DTI restrictions. Rules on these design matters need to be agreed before banks can begin making the systems changes required to be prepared to implement DTI restrictions. These changes will take banks around 12 months. We have not made a decision to activate DTI restrictions and are not consulting on a particular DTI setting at this stage.

Please let us know your views on the questions set out in the consultation paper by 14 December 2022.

More information

• Consultation paper: Framework for Debt-to-Income Restrictions – Design Elements and Exposure Draft (PDF 1.19 MB)
• Exposure draft of DTI framework (PDF 946 KB)
• Feedback on debt servicing restrictions framework informs future policy direction, April 2022

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