The proposed rules would link borrowing capacity to income, with owner-occupiers facing a limit of 6 times their income and property investors restricted to 7 times their income. For instance, if a couple earns a combined annual income of $100,000, under the proposed rules, they could borrow up to $600,000 for owner-occupied properties or $700,000 for investment properties.
It's important to note that DTI calculations encompass all forms of debt, including mortgages, credit card balances, personal loans, and student loans. This holistic approach provides a comprehensive picture of an individual's financial obligations and their ability to take on additional debt.
However, these restrictions only apply to purchases of existing properties. New builds are exempt from DTI limitations, meaning individuals seeking to invest in new construction projects may still be able to borrow at higher levels, subject to the lender's discretion.
While the Reserve Bank is currently consulting on the proposed DTI rules, with an updated announcement expected in June 2024, many individuals are already contemplating the potential impact on their financial portfolios and the broader property market. Understanding how these restrictions will affect borrowing capacity and investment strategies is crucial for navigating the evolving landscape of property ownership and finance.
To assist individuals in assessing their borrowing capacity under the proposed DTI rules, tools such as DTI calculators are available. These resources enable individuals to gauge their eligibility for loans based on their income levels and existing debt obligations, providing valuable insights for financial planning and decision-making.
As stakeholders await further updates from the Reserve Bank, the impending implementation of DTI restrictions underscores the importance of prudent financial management and awareness of regulatory changes in the housing market.
DTI
Here are the rules the Reserve Bank plans to bring in:
6x your income – for an owner-occupier
7x your income – for a property investor
If you and your partner earn $100k a year combined, the maximum you can borrow is:
$600k if you are an owner-occupier
$700k as an investor