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Australia's banking regulator, APRA, has announced that from February it will restrict high debt-to-income (DTI) home loans to curb financial risks. Under the new rule, banks can issue no more than 20% of new mortgages where the borrower's debt is six times or more than their income. The cap applies to both owner-occupied and investor loans, excluding new construction loans. This follows a sharp increase in investor lending and housing prices. Currently, 10% of investor loans and 4% of owner-occupied loans exceed the threshold, raising concerns over potential market instability.
Australia's banking regulator is set to implement its first-ever cap on high debt-to-income home loans starting February. According to the new rules, authorised lenders will be allowed to issue only up to 20% of new mortgages where the borrower's debt is six times or more than their income. The limit applies to both owner-occupied dwellings and investor loans, but loans for newly built homes are excluded from this cap. Advertisement
Recent APRA data shows that about 10% of new investor loans and 4% of owner-occupied loans already surpass this high DTI level. The regulator noted that these loans carry higher financial risks, especially if housing prices decline or borrowers face interest rate increases.
APRA's chair emphasized that the cap is intended as a preventive measure, aiming to manage potential risks in the housing and mortgage market before they become a threat to financial stability. Australia's banks hold a large share of residential mortgages compared with global peers, making the market more sensitive to housing downturns or sharp property price drops.
This DTI limit follows earlier regulatory interventions, such as the 2017 restrictions on interest-only loans, and marks the first major change to mortgage lending rules in nearly a decade. It also comes amid a strong increase in investor lending, which has driven higher overall credit growth, combined with rising housing prices and government incentives for first-time buyers.
Industry experts note that while this rule may slightly constrain high-risk borrowing, it is primarily designed to encourage responsible lending practices. The cap balances maintaining access to home finance with protecting the banking system and borrowers from potential financial stress. APRA expects the measure to reduce excessive leverage without impacting overall housing demand significantly.
Source Reuters
5th Jun, 2025
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