iscover 
The Australian Prudential Regulation Authority (APRA) is bringing in new lending curbs for high debt-to-income (DTI) mortgage lending to “pre-emptively contain a build-up of housing-related vulnerabilities in the financial system”.
From 1 February, banks must limit home lending of six times income or more to 20 per cent of their new mortgage lending.
The limit will apply separately to bank owner-occupier and investor lending.
It will not apply to bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings in order to allow for “the smooth functioning of property transactions and avoid constraining incentives for the supply of new housing”.
Only a small number of ADIs are expected to be near the limit for high DTI investor lending at this stage.
APRA said the move is expected to have greater impact on investors, who typically borrow at higher DTI ratios than owner-occupiers.
APRA said the change was needed as it has observed “a pick-up in some riskier forms of lending over recent months as interest rates have fallen, housing credit growth has picked up to above its longer-term average and housing prices have risen further”.
While high DTI lending is still at a low level, the regulator noted it has started to pick up, albeit driven by high DTI loans to investors.
It said it expected this to increase further in this part of the cycle, and already high household indebtedness could increase further.
Moreover, when combined with “a resilient labour market”, APRA said these trends suggest a shift in the financial risk cycle and a potential build-up of vulnerabilities that could undermine banking sector and household financial resilience if left unchecked.
It said it was therefore acting now to “contain the potential build-up of housing-related risks from high DTI lending”.
Chair John Lonsdale said APRA is not prepared to wait for housing-related vulnerabilities to build up before acting.
“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, we 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,” Lonsdale said.
He added that while the lending limit will apply to all ADIs, there will be some proportionate treatment for smaller ADIs.
APRA’s other active macroprudential policy tools, the mortgage serviceability buffer and counter-cyclical capital buffer, remain the same (three per cent and one per cent of risk-weighted assets, respectively).
Lending is booming
APRA’s decision comes amid a surge in overall mortgage demand, particularly from first home buyers and investors, following three interest rate cuts this year.
New data from Equifax shows mortgage applications jumped 10.3 per cent year-on-year in the September quarter — the strongest annual growth since 2021 — with first home buyer inquiries reaching their highest level in more than two years. The ABS has similarly reported a 6.4 per cent rise in new mortgages and a 9.6 per cent increase in the value of loan commitments over the same period.
However, it is the rapid acceleration in investor activity that appears to be of greatest concern to regulators.
Investor lending has grown at three times the rate of owner-occupier lending, with the ABS revealing a record 57,624 investor loans written in the September quarter — surpassing the previous high in early 2022.
Victoria has emerged as the fastest-growing investor market, posting 13 per cent annual growth and contributing to a nationwide upswing supported by rising rental yields and population growth. This renewed investor momentum has coincided with a decline in lending for new builds, land and construction, placing further pressure on established housing stock and contributing to higher prices and larger average debts.
Alongside heightened mortgage demand, consumer credit appetite has also surged. Equifax reported double-digit growth across personal loans, credit cards and auto loans, as well as a 43 per cent spike in buy now, pay later applications following regulatory changes. This broad-based expansion in household borrowing reflects stronger consumer sentiment but also adds to the overall leverage within the system — a dynamic APRA is monitoring closely.
Against this backdrop of rising credit growth, record investor activity, and already elevated household indebtedness, the regulator’s concern is that riskier forms of lending could ramp up quickly as competition intensifies.
By introducing a cap on high DTI lending now, APRA is seeking to moderate borrowing behaviour early in the cycle, reduce the risk of debt stretching, and strengthen the resilience of both banks and households before vulnerabilities have a chance to accumulate.
[Related: Mortgage applications soar to 4-year high]