The Australian Prudential Regulation Authority (APRA) will introduce a lending cap on high debt-to-income (DTI) mortgages to contain emerging housing-related risks as the credit cycle accelerates.
From 1 February next year, authorised deposit-taking institutions (ADIs) will be limited to no more than 20% of new mortgages at a DTI of six or more, with separate caps for owner-occupiers and investors.
APRA said the activation aligns with APS 220, noting that DTI limits complement existing macroprudential tools such as the serviceability buffer and countercyclical capital buffer. The regulator cited falling interest rates, firmer housing credit growth, and rising prices as drivers of renewed risk.
High DTI lending has begun to increase from a low base, primarily among investors, and APRA warned this segment typically expands faster during easing cycles.
APRA noted that lower rates and a strong labour market often coincide with rising indebtedness and a lift in riskier credit, similar to the pattern seen in 2021. For now, only a small number of ADIs appear close to the new limit.
APRA chair John Lonsdale said the regulator aims to intervene early.
“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,” Lonsdale said in a media release.
He said the risk build-up is concentrated in high DTI loans to investors.
“At this point, the signs of a build-up in risks are chiefly concentrated in high DTI lending, especially to investors," Lonsdale said. "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.”
The APRA leader said acting early reduces disruption.
“Although broader risks are contained, we have seen in the past that they can build rapidly when interest rates are low or declining," Lonsdale said. "We will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards.”
APRA said the limit is a forward-looking safeguard and less costly to implement now than once high-risk lending is already elevated.
The cap excludes bridging loans for owner-occupiers and loans for purchasing or constructing new dwellings, to avoid restricting transactions or supply.
Smaller ADIs will receive proportionate treatment, including rolling measurement periods and additional implementation flexibility.
The limit is not expected to constrain most borrowers in the short term, but investor clients may face tighter settings if credit growth accelerates. Brokers may need to monitor individual lender DTIs closely, particularly for highly leveraged applicants.
If high DTI flows approach the cap, lenders may prioritise lower-DTI or lower-risk borrowers, increasing demand for strategies such as stronger income evidence, joint applications or alternative lender pathways.
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