APRA has moved early to contain rising mortgage risks by placing a new limit on high debt to income lending. From 1 February, banks will be allowed to let only up to 20 per cent of their new mortgages go to borrowers taking on debts of six times their income or higher. The cap will apply separately to owner occupiers and to investors.
The regulator said the shift comes as high debt to income ratio (DTI) lending has started to edge higher again after a long period of restraint. The release notes that household indebtedness is already high by global standards, and recent falls in interest rates have begun to stir riskier forms of borrowing, led by investors. While the current level of high DTI loans is still low, APRA said the trend points to a fresh stage of the financial cycle that could create pressure if left untouched.
APRA explained: “At an aggregate level the limit is not currently binding, so it is not expected to have a near term impact on borrowers’ access to credit.” Only a small group of lenders are close to the cap for investor loans. The regulator said the measure will act as a guardrail if the share of high DTI lending rises over coming months.
Chair John Lonsdale set out the reasoning, saying APRA is not prepared to wait for housing related vulnerabilities to build up before acting. His statement reads: “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.”
He added that while lending standards have not deteriorated, risks can build quickly when rates fall, competition lifts and borrowers stretch their income. Lonsdale warned that APRA will “consider additional limits, including investor specific limits, if we see macro financial risks significantly rising or a deterioration in lending standards.”
Housing data shows why APRA is paying close attention. Investor loan commitments have climbed through 2024 and 2025 and are now well above pre pandemic levels. Owner occupier lending is steady, yet investors have added more heat as rental shortages and rising prices have drawn them back into the market.
Commentators see the new cap as a timely move to steady momentum. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, said the decision was designed to cool investor activity before it overheats and suggested it would also restrict next year’s price gains. Stephen Koukoulas, an independent economist and former adviser to Prime Minister Julia Gillard, described the cap as being comparable to a sizeable rate increase in terms of tightening policy settings.
Tarric Brooker, a journalist and economic analyst who tracks lending data, said he does not see the 20 per cent threshold being reached soon, noting that the present share of loans above six times income sits far below that level. Even so, APRA’s stance signals that the regulator is prepared to step in early rather than allow risks to build unchecked.
The limit excludes bridging loans for owner occupiers and loans for new homes so that construction finance and property transactions continue without disruption.
With credit conditions loosening and prices continuing to climb, the new cap marks APRA’s attempt to guide the market through the next phase without allowing high risk borrowing to surge.
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