Home buyers could soon face a limit on how much they can borrow, based on their income, as officials look for new ways to control rampant house price increases.

Finance Minister Bill English has confirmed he is in talks with the Reserve Bank over introducing so called debt to income limits on mortgages. 

It was a tool the bank wanted to look at but it had not asked him for a conclusion. He would wait and see what the analysis said and did not want to prejudge discussions with central bank Governor Graeme Wheeler.

The Government has a memorandum of understanding (MOU) with the Reserve Bank which defines the tools it can use to limit lending and prevent a housing "bubble" developing and curb any risks to banks.

The bank already uses "loan to value" (LVR) ratios and English would have to add the debt to income tool to the measures available to the bank under the MOU, but it would be up to the Reserve Bank to decide how and when to use it.

It is in use in the United Kingdom, where it limits lending to no more than 4.5 times annual earnings. 

That would limit the average family to a loan of almost $400,000 at a time when average house prices have hit $955,000 and are heading to $1 million. It would likely hit investors as well as first home buyers.

Auckland's LVRs are set so that no more than 15 per cent of new loans can be made to home buyers with less than a 20 per cent deposit. Investors must have 30 per cent.

Meanwhile, commenting on this afternoon release of a planned national policy statement, aimed at opening up more land for housing and business development in Auckland and other centres, English said more land at an affordable price was the only way to give first home buyers a better chance of buying in Auckland.

They should be careful about the risk they were taking buying into a fast rising market at low interest rates because interest rates would certainly go up it was just a matter of when - it might be next year, two or three years away but certainly in the term of a normal mortgage - he said.

Source:Stuff.co.nz