APRA has introduced a new limit on high debt-to-income home loans that takes effect from 1 February 2026. The policy restricts authorised deposit-taking institutions (banks and similar lenders) so that no more than 20 per cent of new mortgage lending can be to borrowers with a debt-to-income ratio of six times income or more. This 20 per cent limit applies separately to owner-occupier lending and investor lending.
The cap is designed to contain the fastest-growing forms of leveraged borrowing and reduce risk in the financial system as property prices rise and credit growth strengthens. Recent trends show riskier lending expanding among some borrowers, particularly investors.
The debt-to-income ratio used for the cap measures total debt relative to gross income. Loans above six times income are considered high risk in a macroprudential context. The cap does not apply to bridging loans for owner-occupiers or loans financing the purchase or construction of new dwellings, so as not to slow new housing supply.
Current data indicates the share of new loans above six times income sits well below the 20 per cent threshold. This means the new limit is unlikely to immediately restrict the overall volume of lending. In practice, only a small proportion of new owner-occupied and investor loans currently exceed the six-times-income mark.
Lending standards across the market remain under stress tests that require banks to assess borrowers against higher interest rates, reinforcing serviceability requirements. These existing buffers have had a greater impact on how much people can borrow than the new cap itself.
The policy responds to persistent affordability challenges. National dwelling values remain elevated and borrowing costs have stayed above historic lows, squeezing serviceability for many buyers. First-home buyers have faced rising debt levels amid expanded guarantee schemes that allow lower deposit requirements, which has coincided with higher borrowing relative to incomes.
APRA’s cap is part of broader efforts to strengthen financial resilience without broadly suppressing market activity. The limit on high debt loans aims to slow the build-up of risky credit rather than act as a general demand shock. Regulators retain the option to tighten further if risk indicators worsen.
The policy’s immediate impact on prices is expected to be limited because most lending already complies with the new eligibility constraints. Longer-term effects will depend on broader economic conditions, housing supply, and demographic pressures shaping demand.
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