The Australian Prudential Regulation Authority has revealed stricter constraints on high-risk loans.
This decision will impact both homeowners and investors, following APRA's observation of a noticeable increase in certain high-risk lending practices in recent months, as indicated by the agency.
The regulator pointed out that “the growth of housing credit has surpassed its long-term average, and property prices continue to rise. ”
What exactly is being limited?
The restrictions apply to banks. Nonetheless, this might also influence individuals planning to borrow in the future.
APRA is tightening its grip on new loans where individuals (or a group of borrowers) have applied for amounts that are six times or more than their income. This is seen as a high debt-to-income ratio.
Starting February 1, banks will only be permitted to allow such loans to constitute 20 percent of their new mortgage offerings.
John Lonsdale, chair of APRA, indicated that only a limited number of banks and approved lending entities are likely to approach this threshold. Nevertheless, the authority is taking proactive measures.
“Increasing debt levels have historically correlated with a rise in risky lending practices and rapid property price escalation,” he stated.
“At this moment, the indicators of growing risks are primarily focused on high DTI lending, particularly for investors.
“By instituting a DTI limit at this time, APRA seeks to proactively mitigate risks associated with this lending type and enhance the resilience of the banking and household sectors. ”
Leonard did not dismiss the possibility of imposing further restrictions on lending, especially regarding investors.
“We will evaluate the need for additional caps, including those specific to investors, should we observe a significant increase in macro-financial risks or a decline in lending standards,” he noted.
The mortgage serviceability buffer of 3 percent, another policy by APRA, remains unchanged by last week’s announcement. Under this buffer, confirmed in July 2025, the ability of borrowers to manage their debt payments is examined based on the existing interest rate plus 3 percent.
Who will be impacted?
Tim Reardon, the chief economist at the Housing Industry Association, noted that the increased restrictions might influence younger buyers and investors more significantly than older populations.
“Older households that have experienced growth in their wealth through property appreciation are financially stable and are not likely to encounter restrictions in obtaining capital. Conversely, younger individuals who are in a wealth-building stage will face challenges,” Reardon explained.
“There are individuals in their 30s and 40s who invest in properties as part of their saving strategies. These investors are essential for a healthy housing market and contribute to the availability of rental homes.
"The measures introduced by APRA may worsen the existing intergenerational inequality stemming from rising property prices. ”
Reardon further emphasized that investors are crucial for housing supply.
“Investors have a vital role in addressing Australia's housing issues, and we require an increase in the number of investors developing new properties, rather than a decrease,” he remarked.
High cost of our mortgages
APRA’s decision followed new data indicating the substantial costs households are incurring to manage mortgages as property prices continue to rise.
The Housing Affordability report from Cotality, published last week, revealed that the portion of income necessary to meet mortgage payments has almost doubled over the last five years.
Nationwide, it showed that securing a new mortgage demands 45 percent of the median household earnings. Additionally, it reported that the average home price is currently 8.9 times the median income, up from 6.6 five years prior.
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