APRA Caps High DTI Home Loans as Housing Risks Rise

Australia’s banking regulator, the Australian Prudential Regulation Authority (APRA), will introduce its first cap on high debt-to-income (DTI) home loans beginning February, aiming to cool housing-market risks as property prices surge and mortgage lending accelerates. Under the new rule, banks will be limited to issuing no more than 20% of new home loans at six times a borrower’s income or higher. The cap will apply to both owner-occupier and investor loans but will exclude financing for new housing construction to help maintain supply.

APRA data shows that currently about 10% of new investor loans and 4% of owner-occupied loans exceed the six-times-income threshold. APRA Chair John Lonsdale said early intervention is necessary as housing-related risks continue to grow, stressing that proactive limits now will be less disruptive than delayed action. Australia’s financial system is particularly sensitive to housing shocks because of banks’ heavy exposure to residential mortgages.

Across the sector, around 6% of all new loans meet or exceed six times borrowers’ income, while roughly half fall between four and six times, and 44% remain below four times. Following APRA’s announcement, Australia’s S&P/ASX 200 financials index edged 0.56% higher.

This marks APRA’s first use of DTI restrictions and its first lending-rule change since 2017, when interest-only loan caps were introduced. The move also aligns Australia with similar measures adopted recently in New Zealand and Canada. Treasurer Jim Chalmers welcomed the update, noting that responsible lending rules strengthen financial stability and ultimately assist Australians seeking to enter the property market.

The decision follows three rate cuts this year and new government incentives that have reignited buyer demand, pushing home prices to record levels. Investor lending—typically associated with higher DTI ratios—has been a key driver, with loans to investors jumping 18% last quarter. As a result, markets now believe the Reserve Bank of Australia is unlikely to cut rates next year, and some analysts predict the next cash-rate move, currently at 3.6%, could be upward.

The Australian Banking Association supported the exemption for new-build housing, emphasizing that maintaining safe access to credit through regulated banks prevents borrowers from turning to higher-risk non-bank lenders.