Borrowing Power · 31 August 2026
What the debt to income restrictions require in 2026, what actually counts as debt, and why DTI is the one lending gate that does not move when interest rates do.
In this article
A debt to income ratio, or DTI, is the household's total debt divided by its gross annual income. Since 1 July 2024 the Reserve Bank has restricted how much high DTI lending banks may write: no more than 20% of new owner occupier lending may have a DTI above 6, and no more than 20% of new investor lending may have a DTI above 7 (Source: RBNZ). In everyday terms, a household earning $150,000 before tax reaches a DTI of 6 at $900,000 of total debt, and lending beyond that point is available only within a limited share of each bank's book.
The arithmetic is deliberately blunt. It ignores what the debt costs to service, what term it runs over, and what the property is worth, and asks only how many years of gross income it would take to repay everything owed.
Source: Reserve Bank of New Zealand, debt-to-income restrictions, in force since 1 July 2024.
Nothing has moved this year. In its August 2026 annual review of macroprudential policy the Reserve Bank's Financial Policy Committee maintained the settings, confirming that DTI restrictions remain in place, that they complement the loan to value restrictions, and that they act as a guardrail against the build up of high risk lending, particularly during periods of low interest rates and strong housing demand. The next review is intended in around 12 months, though it can be brought forward if conditions warrant (Source: RBNZ).
DTI and LVR are often discussed together and are easy to confuse, but they govern different things. LVR compares the loan to the value of the property, so it sets your deposit. DTI compares total borrowing to income, so it sets the size of the loan. Clearing one does not clear the other, and the deposit side is covered separately in our guide to the 2026 LVR rules and what the deposit limits mean.
The debt side is the whole household stack once the new loan is drawn, not just the mortgage being applied for. That means the proposed loan, any existing mortgages including debt secured on other property, personal loans, car loans, hire purchase arrangements, student loan balances where the lender counts them, and credit card and revolving credit limits.
The revolving credit treatment surprises people most. In practice lenders count the limit on a credit card or revolving facility rather than the balance drawn, because the limit is what the borrower is able to draw at any moment. Two cards with a $10,000 limit each add $20,000 to the debt total even if both are cleared in full every month and have been for years. Nothing about how responsibly the card is used changes that number.
The income side is gross household income before tax, from the sources the lender is prepared to recognise, and that recognition is where lenders diverge. Overtime, bonuses, commission, rental income and self employed income are all assessed differently from bank to bank, which is why the same household can be handed different DTI figures in the same week. If your income is not a straightforward salary, that is covered in our guide to getting a mortgage when you are self employed in NZ.
Your borrowing capacity is set by more than one gate, and only the smallest one matters. The bank's servicing assessment measures the repayments on the proposed loan against your income and living costs, but it does so at a stress tested rate set well above the rate you would actually pay, so that the loan still works if rates rise. DTI does none of that. It divides total debt by gross income and stops.
So the two gates behave differently over an interest rate cycle. When lenders lower their test rates, the servicing gate widens, because the assumed repayment has fallen. The DTI gate does not move at all, because neither the debt nor the gross income changed. Raise test rates and servicing narrows again while DTI stays exactly where it was.
That means the gate actually limiting a household can swap over without anything about the household changing. When test rates are high, servicing is usually the binding constraint and DTI has slack behind it. As test rates come down, servicing loosens toward the DTI ceiling, and at some point DTI takes over as the number that decides the answer.
In our experience at Trebla, this is behind one of the more deflating conversations we have. A household that was declined or capped at a certain figure hears that rates have fallen, comes back expecting a materially bigger number, and finds it has barely moved. The instinctive reading is that the bank has become more conservative. Usually the bank has not changed its view at all: the constraint simply handed over from one gate to another, and the second gate is not listening to interest rates. Understanding which gate you are near tells you which lever is worth pulling, and that is a different question from what rate you can get. If you are weighing up the rate side separately, our guide to fixed versus floating mortgages in NZ covers that ground.
Follow that reasoning one step further and a familiar question gets a better answer. People routinely ask whether it is worth clearing a car loan or closing a credit card before applying. It depends on which gate you are near, because each one prices the same debt completely differently.
Under DTI, the relationship is one for one. A $15,000 car loan sits in the debt total as $15,000, so it removes $15,000 of mortgage headroom. Nothing more, nothing less.
Under the servicing test, the same $15,000 loan is measured by its repayment, and a consumer loan repaid over a few years carries a far heavier monthly repayment than $15,000 of mortgage spread over decades. That repayment displaces several times its own balance in mortgage capacity. The debt is identical. The cost is not.
Debt counts at face value, so paying down a balance buys back the same amount of headroom. The high leverage move is reducing or closing unused credit card and revolving limits, because the full limit counts whether or not it is drawn.
Debt counts by its repayment, so short term consumer debt is the expensive kind. Clearing a small loan with a heavy monthly repayment can free up more capacity than its balance would suggest.
Neither of those is a recommendation for any particular household, and closing a facility has consequences beyond a lending application. The point is that "should I pay this off first" has no general answer, only one that follows from where your household currently sits. The full set of limits behind your final number is set out in our guide to how much you can borrow for a mortgage in NZ.
Some lending is exempt from the DTI restrictions entirely. The Reserve Bank's exemptions cover Kāinga Ora loans including First Home Loans, refinancing where the new loan value does not exceed the original, portability where a loan moves to another property without the total increasing, bridging finance, property remediation such as fixing a leaky home, and construction lending, which covers building a new home or buying a newly built home from the developer within 6 months of completion (Source: RBNZ).
Two qualifications matter. An exemption removes the restriction, not the lender's own credit assessment, so an exempt loan still has to be serviceable on the bank's terms. And an exemption attaches to the lending rather than the borrower, so a household can hold exempt lending on one facility and restricted lending on another. The short term category is covered in our guide to bridging finance in NZ.
The restrictions apply to new lending, so an existing mortgage is not reassessed against DTI when settings move. A top up that increases total borrowing is new lending, which is where an existing owner most commonly meets the test for the first time.
There is no official definition of a good DTI, only a regulatory threshold. The Reserve Bank allows banks to write no more than 20% of new owner occupier lending above a DTI of 6, and no more than 20% of new investor lending above a DTI of 7 (Source: RBNZ). Below those thresholds an application sits in the ordinary flow of a bank's lending. Above them it competes for a limited share of the book, so the practical answer depends less on a target number and more on which side of the threshold the total sits, and on whether the bank's own servicing test is satisfied as well.
Add up all the debt the household will owe once the new loan is drawn, including the proposed mortgage, any existing mortgages, personal and car loans, hire purchase, student loan balances where the lender counts them, and credit card and revolving credit limits. Divide that total by gross household income before tax. A household with $150,000 of gross income and $900,000 of total debt has a DTI of 6. Individual lenders differ on how they treat some income types and some debts, so the figure a lender calculates can differ from a figure you calculate at home.
In practice lenders count the limit on a credit card or revolving credit facility rather than the balance you actually owe, because the limit is what you are able to draw at any time. Two cards with a $10,000 limit each add $20,000 to the debt total even when both are paid off in full every month. Reducing a limit you do not use, or closing a facility entirely, is one of the few adjustments that changes the DTI calculation directly rather than over time.
Yes, that lending exists, but it is rationed. Banks may write up to 20% of new owner occupier lending above a DTI of 6, so applications above the threshold compete for a limited share of each lender's new lending rather than being freely available (Source: RBNZ). Exempt categories sit outside the restriction altogether. Being above the threshold does not make an application impossible, but it does make it a different conversation, and the lender's own servicing assessment still has to be satisfied on top.
Construction lending is exempt. The Reserve Bank lists construction loans among the exemptions, covering a borrower building a new home or buying a newly built home from the developer within 6 months of completion. Kāinga Ora loans including First Home Loans, refinancing where the new loan value does not exceed the original, portability, bridging finance and property remediation are also exempt (Source: RBNZ). An exemption removes the restriction, not the lender's own credit and servicing criteria.
Whichever produces the smaller number for your household, and that can change over time. The servicing test measures repayments at a stress tested rate against your income and expenses, so it loosens as lenders lower their test rates and tightens when they raise them. DTI measures total debt against gross income and does not respond to interest rates at all. A household can be limited by servicing in one part of the cycle and by DTI in another without anything about the household changing.
Useful tools and guides
This article is general in nature and is not financial advice. It is published by Trebla Partners Limited (FSP728251), a Financial Advice Provider. Lending criteria, lender policies, and relevant rules vary and change regularly. Always seek advice specific to your situation before making decisions, which you can arrange at book.trebla.nz/book. Read our disclosure statement →
