The Australian Prudential Regulation Authority (APRA) has announced a significant shift in the way banks assess mortgage risk, introducing debt-to-income (DTI) lending limits for the first time in Australia’s history. These new rules, effective 1 February 2026, place Australia in line with countries such as New Zealand, the UK, Canada and Ireland, where DTI limits have long been a tool used to cool overheated property markets and reduce systemic financial risk.
This change is expected to reshape how both property investors and home buyers approach borrowing, particularly those who rely on higher leverage to enter the market.
What APRA Is Changing in 2026
From early 2026, banks and lenders must ensure that no more than 20% of their new quarterly mortgage lending goes to borrowers whose debt-to-income ratio is six times or higher. A DTI ratio measures the size of a loan against the borrower’s gross annual income. A ratio of six, for instance, means a borrower earning $75,000 before tax could theoretically take out a mortgage up to $450,000.
The 20% cap will apply separately to owner-occupier and investment lending. Banks will not be permitted to combine these lending categories, meaning investors will be assessed against their own lending pool. APRA has included exemptions for bridging loans and construction loans, recognising that these types of lending behave differently from standard mortgage products.
Internationally, the new Australian limit is relatively generous. New Zealand’s DTI limit sits between six and seven times income, while Ireland and Canada restrict lending far more tightly. Australia’s approach suggests a desire to curb the most aggressive forms of high-debt borrowing without dramatically restricting access to credit.
How Banks Will Apply the New Rules
The new framework requires lenders to track and manage their quarterly lending volumes, ensuring that the share of high-DTI loans remains under the 20% threshold. While banks will still be permitted to issue loans above a DTI of six, they will need to be far more selective in doing so. If a bank is nearing its cap, it may become increasingly conservative, tightening assessment criteria or prioritising applicants with stronger financial profiles.
This is not the first time APRA has stepped in to control mortgage lending risk. In 2017, it imposed temporary limits on interest-only loans, which significantly changed investor borrowing patterns. Although those limits were later lifted, they demonstrated the powerful role APRA can play in shaping mortgage behaviour. The new DTI rules represent the next phase of its prudential management strategy.
What Borrowers Can Expect Under the New DTI Cap
Borrowers with a DTI below six are unlikely to notice any change to their borrowing experience. The rules are aimed at the upper end of the risk spectrum, where households are most vulnerable to interest rate rises, income shocks or market downturns.
However, borrowers with a DTI of six or higher may find that accessing credit becomes more challenging, especially if they apply during a quarter when their bank has already used most of its high-DTI allocation. In such cases, banks may approve fewer high-DTI loans, increase interest rates for this segment, or restrict access entirely until the next quarter.
Existing mortgage holders will remain unaffected unless they wish to refinance. Even then, refinancing at a DTI above six may be more difficult depending on the chosen lender’s capacity at the time.
The Impact on Property Investors
Property investors are one of the groups most likely to feel the effect of APRA’s new lending rules. Investment loans are often larger, and many investors carry multiple mortgages, pushing their DTI ratios higher than those of owner-occupiers.
The new rules may prompt banks to be more selective with investor lending, particularly for borrowers with multiple properties or high gearing. Some investors may shift their strategies, focusing on lower-priced properties, diversifying into regional markets, or reducing leverage in order to remain eligible for finance.
While APRA’s changes are designed to reduce systemic risk, they may also unintentionally reshape investing patterns, slowing the pace of aggressive portfolio expansion and reducing the number of investors who rely heavily on high leverage.
First-Home Buyers and Market Inequality
First-home buyers often borrow at higher income multiples due to smaller deposits and less equity. For some, the DTI cap may constrain borrowing capacity, particularly in capital cities where even entry-level homes require substantial loans.
This may push certain buyers toward more affordable suburbs or regional locations. International research shows that such limits can exacerbate socio-economic divides, particularly in markets like Norway and Israel, where households have been forced into longer commutes or areas with fewer opportunities.
Although APRA’s limit is comparatively flexible, this dynamic could still emerge in Australia’s more expensive property markets.
APRA’s Broader Objective
APRA’s introduction of DTI limits signals its growing concern with household debt levels and broader financial vulnerabilities. While the regulator says it does not expect the new rules to severely restrict overall mortgage lending, the move is designed to send a clear message: high-risk borrowing must be controlled before it becomes a systemic problem.
In global markets, DTI caps have proven effective at reducing household stress and preventing sharp rises in risky debt. Australia’s adoption of this policy reflects a proactive approach to maintaining financial stability, particularly after a period of rising rates and heightened cost-of-living pressure.
What This Means for the Australian Housing Market
The new rules may gradually reduce the number of highly leveraged buyers in the market, which could slow price growth in certain segments. At the same time, competition among borrowers with lower DTI ratios may intensify. Although immediate effects on the property market may be limited, the long-term implications could include more moderate price growth, greater scrutiny from lenders, and a shift in buyer behaviour toward more affordable locations.
Source: APRA
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