The Australian Prudential Regulation Authority (APRA) has moved to curb rising financial system risks, announcing a new limit on high debt-to-income (DTI) home loans that will apply from 1 February 2026.
The shift comes as falling interest rates, stronger housing credit growth and further price rises have encouraged a lift in borrower appetite, particularly among investors taking on higher leverage. While overall lending standards remain sound, APRA has noted a lift in riskier loan types over recent months.
In a media release, the regulator warned that these conditions point to a change in the financial risk cycle, with the potential for higher household indebtedness if current trends continue.
Under the measure, authorised deposit-taking institutions (ADIs) will be permitted to issue no more than 20 per cent of their new mortgages at DTIs of six times income or above.
Importantly, the threshold will be applied separately to:
- owner-occupier lending, and
- investor lending.
APRA emphasised that the limit is not currently binding at a system level, meaning most borrowers will not notice immediate changes. Only a small number of lenders are close to the threshold on their investor books.
However, the regulator expects the guardrail to have a stronger effect on investor activity if high-DTI lending continues to rise, given investors tend to borrow at higher ratios than owner-occupiers.
Why APRA is stepping in now
APRA Chair John Lonsdale said the agency is acting early to avoid the mistakes of past housing cycles.
“APRA’s macroprudential policy tools are designed to mitigate financial stability risks at a system-level. One of the key structural risks to system stability that APRA has long been concerned about is high household indebtedness. Rising indebtedness has in the past often been associated with an increase in riskier lending and rapid growth in property prices.
“At this point, the signs of a build-up in risks are chiefly concentrated in high DTI lending, especially to investors. By activating a DTI limit now, APRA aims to pre-emptively contain risks building up from this type of lending and strengthen banking and household sector resilience.
While strong investor activity can amplify housing lending and price cycles that can impact financial stability, he said APRA are not yet seeing signs of the broad-based build-up of housing vulnerabilities including a deterioration in lending standards that we have seen in previous episodes of strong investor activity.
“Although broader risks are contained, we have seen in the past that they can build rapidly when interest rates are low or declining, borrowers extend themselves and competition among banks for new mortgage lending intensifies, which can lead to easing lending standards.
“We will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards.”
What’s excluded
To avoid disrupting property transactions and new supply:
- Bridging loans for owner-occupiers, and
- Loans for the purchase or construction of new dwellings
will not be counted towards the cap.
The limit will apply to all ADIs, but smaller institutions will receive proportionate treatment.
APRA also confirmed its existing tools—the three per cent serviceability buffer and one per cent counter-cyclical capital buffer—remain unchanged.
For now, the measure is a precautionary cap, not an immediate tightening.
The key watchpoint is investor borrowing. If lenders approach the limit, banks may adjust assessment settings, leading to:
- reduced borrowing capacity for highly leveraged investors, and
- more scrutiny of income and expenses.
