The Australian Prudential Regulation Authority (APRA) has fired a shot across the bows of the nation’s banks in an effort to prevent risky lending in the residential property market.
The nation’s banking regulator said it would impose new limits on high debt-to-income (DTI) home lending to pre-emptively contain a build-up of “housing-related vulnerabilities” in the financial system.
This is the first time APRA has formally limited the share of loans above a specific debt-to-income threshold, previously having monitored them only.
From 1 February 2026, authorised deposit-taking institutions (ADIs) will be allowed to lend up to 20% of their new mortgage lending for owner-occupier and investor lending at a debt of six times income or more, but this excludes bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings.
APRA said that although overall bank lending standards remained sound, it had seen a pick-up in riskier forms of lending in recent months as interest rates fell, housing credit growth passed its longer-term average, and housing prices continued to rise.
It said that combined with a resilient labour market, these trends suggested a shift in the financial risk cycle and a potential build-up of vulnerabilities that could undermine the banking sector and household financial resilience if left unchecked.
High DTI lending had started to pick up from a low base, driven by high DTI loans to investors, and this was expected to increase in this part of the cycle, and already high household indebtedness could increase further.
APRA Chair John Lonsdale said the regulator was acting early to prevent a build-up of risks that could undermine banking sector resilience and household financial stability if left unchecked.
"APRA’s macroprudential policy tools are designed to mitigate financial stability risks at a system level,” he said in a media release.
“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.”
The regulator said only a small number of ADIs were expected to be near the limit for high DTI investor lending at this stage.
“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,” APRA said.
Should levels of high DTI lending rise towards the 20% over the coming period, the limit would act as a guardrail and is expected to have a greater impact on investors, who typically borrow at higher DTI ratios than owner-occupiers.
