Government, Reserve Bank begin talks on debt-to-income ratios

The Government has begun discussions with the Reserve Bank about income-related restrictions on mortgage lending, Finance Minister Bill English has confirmed.

The central bank last month said it was "seriously considering" debt-to-income ratios, which stop people from borrowing too much relative to their income.

Mr English confirmed this afternoon that the Government was now discussing the measure with the bank's governor Graeme Wheeler.

Mr Wheeler had not made a formal request for the debt-to-income ratios to be adopted, but had told Government that it wanted to investigate the policy.

"Discussions have started but we haven't had a formal request yet," Mr English told reporters at Parliament this afternoon.

"We'll wait and see what the analysis tells us. I just don't want to pre-judge the discussions with the bank."

The Government has a Memorandum of Understanding (MoU) with the Reserve Bank on which tools it can use to curb mortgage lending.

The MoU would have to be amended before an income cap could be introduced.

Last month, the Government said it could not rule out the policy as a potential response to cool the housing market and prevent "a bubble emerging".

It is already used in the United Kingdom, where most buyers cannot get a mortgage higher than 4.5 times their annual earnings.

If applied in Auckland, it would limit a typical family to a mortgage of no more than $400,000.