In a move that could further stress hard-hit first-time home buyers, proposed Reserve Bank measures could force all banks to count personal debt such as credit cards against proposed home loans.
Financial experts say the move could mean hopeful buyers with personal loans or credit cards would need to have even more than an already high 20 per cent deposit in order to avoid the limits on loans to home buyers with small deposits, which will be introduced next month.
The Reserve Bank issued the consultation paper last week proposing the inclusion of credit card debt and personal loans in all cases when banks considered lending mortgages because prospective buyers could be using that debt to top up their deposits.
A spokesman said the paper sought consistency about what was included and what was left out when valuing mortgages - a question which had become more important with the lending restrictions.
Although banks currently ask mortgage applicants to disclose other debt, it is often not verified or included in determining how big a home loan they can get.
In its discussion paper the Reserve Bank said adding such loans to the mortgage led to a higher loan to value ratio (LVR).
Excluding them could undermine the LVR measures "particularly if borrowers became tempted to use their credit card facilities or personal loans to raise or increase the deposit needed to obtain a mortgage".
Financial author Martin Hawes said there had to be consistency to ensure some banks did not have a competitive advantage as those which excluded such debts could potentially offer more high LVR loans.
The move would have some impact on first home buyers because where most people would once have loaded that debt on to their mortgages because the interest rate was lower, doing so now would decrease their deposit relative to their loan.
"And assuming the bank was counting it in, or that they have to count it in, that would require you to have more deposit."
Labour's Housing spokesman Phil Twyford said it could make it harder for first home buyers.
"The end result is it's incredibly difficult for first home buyers to get, what in Auckland for a median house, would be a $130,000 deposit and if they're going to be that finicky to check people's credit card debt and bank loans and go through their personal finances with a fine tooth comb that just shows how tough it's getting for first home buyers."
Dr Claire Matthews from Massey University's Centre for Banking Studies, who had not yet read the entire paper, said it could force some borrowers to seek extra finance from second-tier lenders.
"I don't think it would actually work unless the Reserve Bank was also going to introduce rules which say you have to have your credit card where you have your loan and that's really becoming quite restrictive."
Personal debt could only be included in the LVR calculations if the card and the loan are both being issued by the same bank, she said. The risk was also that it would encourage people to split their banking.
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