In November 2025, the Australian Prudential Regulation Authority (APRA) announced major changes to the Debt-To-Income (DTI) lending criteria that will be introduced on 1 February 2026.
In this article, we will explain what’s happening, why, and what it means for borrowers and the overall housing market.
Introducing the changes
For the first time, Australian banks and authorised deposit-taking institutions (ADIs) will be limited to how many ‘high-debt’ mortgages they can write.
From 1 February, no more than 20 per cent of a lender or ADIs new home loans can be written for borrowers whose DTI ratio is six times (or more) of their gross annual income. The 20 per cent cap will apply separately for owner-occupier loans and investor loans.
There will be some categories of lending that will be exempt from the cap – bridging loans (e.g. moving house before old house sells) as well as loans for the purchase or construction for new dwellings.
What prompted the changes
APRA’s chair, John Lonsdale has stated that this is a “pre-emptive move” with the aim to contain a build-up of housing related vulnerabilities that is linked to high household debt, an increase in credit growth and the continuing increases in property values.i
APRA has flagged several other reasons as to why they have implemented this cap –
interest rates have recently fallen, which increases the borrowing capacity and riskier borrowing behaviours begin to rise. That, combined with rising property prices and the surge in credit growth, increases the risk of households taking on too much debt.
By acting early, the regulator aims to “rein in” potential household debt vulnerabilities, rather than respond reactively after the fact.
What the cap means for borrowers and lenders
For borrowers, the policy appears to have only a modest short-term impact as APRA has stated that currently, there is only a small share of new home loans that have a high DTI and a minor number of lenders and ADIs who are close to the 20 per cent threshold.
Historically, investor loans have had a higher DTI ratio than owner-occupiers, so as a result, this cap will more likely affect investors who are seeking a larger loan relative to their income.
For lenders, the cap won’t automatically ban lenders from writing high DTI loans completely, it just means there is now a cap of 20 per cent of new DTI loans. The exemption of bridging loans and loans for new builds is suggesting that APRA doesn’t want to restrict the housing supply even further than it currently is.
Why it matters
The introduction of this cap marks a significant shift in how credit for the housing market is regulated in Australia. In the past, lenders would assess a borrower’s capacity to service the loan based on their income, expenses, and the current interest rate. Moving forward, the DTI cap means the regulator is now looking at the overall risk across the sector, rather than just the individual borrower.
From 1 February, prospective borrowers who are planning on borrowing six times or more of their income may be subject to whether the lender has the capacity within their 20 per cent limit. This means that if the lender has reached their quota, you may have to find another lender, even if you meet the serviceability criteria.
The effect on the housing market
This change is not designed to have an impact on the housing market; it is designed to prevent the market from “overheating”.
The rule won’t stop prices rising entirely — but it will cool the rate of growth and make the market more stable.
Reactions by the industry
There has been a mixed reaction to the announcement, with the Mortgage & Finance Association of Australia (MFAA) describing the move as a “pre-emptive” but “sensible, risk-based regulation.” They argue it helps to maintain financial system stability while preserving consumer choice and competition in the mortgage market.
Property investors on the other hand may find it harder to secure financing – especially those wanting to buy multiple investment properties – and this could have an impact on investor-driven demand for housing.
It’s a powerful reminder that in today’s housing-credit environment, the rules of borrowing are shifting – and prudence, for both borrowers and lenders, is now a system-wide priority.
If you need help and advise with understanding these changes, contact our team here.
