Debt to Income Ratios: What Are They and How Are They Measured?

Debt-to-income (DTI) restrictions are now part of New Zealand's mortgage lending landscape. Since 1 July 2024, banks must comply with Reserve Bank [DTI limits](https://www.rbnz.govt.nz/financial-stability/macroprudential-policy/dti-restrictions) that cap how much you can borrow relative to your income. Here's what this means for first home buyers and investors.

What Is a Debt-to-Income Ratio?

Your DTI ratio measures your total debt against your gross annual income. It's calculated by dividing your total debt by your total gross (pre-tax) income. For example, if your gross annual income is $100,000 and your total debt including mortgages and other loans is $600,000, your DTI ratio is 6.0. The higher your DTI, the more leveraged you are, and the more risk the bank takes in lending to you.

Current DTI Limits in New Zealand

Since 1 July 2024, banks must operate within these thresholds:

This means most owner-occupiers cannot borrow more than 6 times their gross income, while most investors cannot borrow more than 7 times their gross income. Banks can make exceptions for 20% of their lending book. For a household earning $150,000, the DTI 6 limit means maximum borrowing of $900,000 for an owner-occupied purchase.

How DTI Is Calculated

Your DTI includes all debts, not just the new mortgage. Total debt encompasses the new mortgage you're applying for, any existing mortgages on other properties, personal loans and car loans, your student loan balance, credit card limits (the full limit, not just what you owe), overdraft facilities, buy-now-pay-later debts, and any other lending commitments.

Income includes salary and wages at gross before-tax amounts, self-employment income typically averaged over 2 years, rental income at usually 75-80% of gross rent, bonuses and commissions which may be discounted, investment income, and NZ Super and other regular benefits.

Example calculation:

DTI calculation: $1,155,000 ÷ $142,500 = 8.1

This exceeds the investor limit of 7, so the bank would need to decline or use their exception allowance.

Exemptions from DTI Rules

Several types of lending are exempt from DTI restrictions. New builds are exempt - if you're building a new home or buying off the plans, DTI limits don't apply. This is designed to encourage housing supply. Learn more about new build mortgages.

Lending under government-supported schemes like Kāinga Ora and First Home Loans is exempt from DTI caps. Refinancing at the same loan value is also exempt - if you're refinancing without increasing your borrowing, DTI rules don't apply. Short-term bridging finance while selling and buying, construction loans for new dwellings, and portability (moving your existing loan to a new property without increasing debt) are all exempt.

DTI vs LVR: Understanding Both Limits

DTI restrictions work alongside existing LVR (loan-to-value ratio) limits. You need to satisfy both. As of December 2025, up to 25% of owner-occupier lending can exceed 80% LVR, while up to 10% of investor lending can exceed 70% LVR.

Consider this scenario: you earn $140,000 and want to buy a $900,000 home. For the DTI check, a $720,000 mortgage divided by $140,000 income gives a DTI of 5.1, which passes the limit of 6. For the LVR check, a $720,000 mortgage on a $900,000 property equals 80% LVR, which also passes. You'd satisfy both tests with a 20% deposit.

Which Limit Bites First?

When interest rates are high, your borrowing is usually limited by serviceability (whether you can afford the repayments) before DTI becomes an issue. At 7-8% interest rates, most people can only borrow 5-5.5 times their income anyway.

When interest rates drop, repayments become more affordable and DTI starts to become the binding constraint. With rates at 5-6%, the DTI limit of 6 may stop you borrowing more even if you could afford higher repayments.

Regional differences matter too. In affordable areas like Invercargill and Taranaki, average DTIs are below 4 and DTI limits rarely bind. In expensive areas like Auckland, Wellington, and Queenstown, house prices are high relative to incomes and DTI limits are more likely to restrict borrowing.

How to Improve Your DTI

If you're hitting DTI limits, there are several ways to improve your position.

Increase Income

You can demonstrate pay rises or promotions, add a second income by having a partner join the application, include rental income from the property you're buying if applicable, and document all regular income sources comprehensively.

Reduce Debt

Pay down existing loans before applying, close unused credit cards and overdrafts, pay off car loans or personal loans, and clear buy-now-pay-later balances. Remember that credit card limits count toward your DTI even if you don't use them.

Consider New Builds

New builds are exempt from DTI restrictions. If you're close to the limit, this can be a viable path to ownership.

Increase Your Deposit

While this doesn't directly improve your DTI since you're borrowing the same relative to income, it improves your LVR position and gives banks more flexibility in approving your application.

Wait and Save

More income over time, or paying down debt, naturally improves your DTI. Use our deposit savings calculator to plan.

Impact on Different Buyers

First Home Buyers

DTI limits of 6 are more generous than interest rates were allowing anyway at the 2023-2024 rate peaks. For most first home buyers with reasonable deposits, DTI isn't the binding constraint - affordability is. However, couples buying in Auckland may find DTI limiting their options. A household earning $200,000 is capped at $1.2 million borrowing, which is below Auckland's median price.

Property Investors

The DTI 7 limit for investors is less restrictive than the owner-occupier limit, but investors typically have multiple properties. Each mortgage adds to total debt, quickly pushing up the DTI ratio. An investor earning $150,000 with two existing mortgages totaling $900,000 already has a DTI of 6. Adding another property becomes difficult without significant income growth or debt reduction.

Upgraders and Second-Home Buyers

If you're selling and buying simultaneously, bridging is exempt. If you're keeping your current property and buying another, both mortgages count toward your DTI.

Working Within the Limits

DTI restrictions add another layer to mortgage qualification, but they're not insurmountable. Most first home buyers won't be significantly impacted since interest rate serviceability was already the main constraint. Investors need to plan their portfolio growth more carefully. New builds remain exempt, creating a pathway for those near DTI limits. Reducing other debts like credit cards and car loans can meaningfully improve your position.

Understanding your DTI before you start property hunting helps set realistic expectations. Use our borrowing power calculator to estimate your capacity, then talk to a mortgage adviser about your specific situation.