APRA Introduces Cap on High Debt-to-Income Home Loans Effective February 2026

Under the new regulation, banks and authorised deposit-taking institutions will be restricted to issuing no more than 20% of new home loans to borrowers with DTI ratios of six times or higher. This cap applies to both owner-occupiers and investors, with an exemption for new housing developments. Currently, approximately 6% of new loans exceed this threshold, with nearly half falling between four to six times DTI.

APRA Chair John Lonsdale emphasised the importance of this preemptive approach, stating that the measure is designed to curb high-risk lending practices before they pose systemic threats to the financial system. Given the banking sector's substantial exposure to residential mortgages, such proactive steps are deemed essential to maintain financial stability.

This policy marks APRA's first adjustment to loan regulations since 2017 and aligns with similar actions taken by regulators in countries like New Zealand and Canada. The decision follows recent interest rate cuts and government incentives for first-home buyers, which have contributed to record property prices and an 18% surge in investor loans in the last quarter.

Market analysts suggest that this move may influence the Reserve Bank of Australia's monetary policy decisions, with expectations leaning towards a potential rate hike. The Australian Banking Association has expressed support for the policy, particularly appreciating the exemption for new housing developments, which is seen as a measure to support housing supply.

Overall, this initiative reflects a concerted effort by Australian financial regulators to balance the need for credit growth with the imperative of maintaining financial stability in the face of a dynamic housing market.