From 1 February next year, banks must limit high debt-to-income ratio to 20 per cent of new lending. The Australian Prudential Regulation Authority (APRA) is bringing in new lending curbs for high debt-to-income (DTI) mortgage lending to pre-emptively contain a build-up of housing-related vulnerabilities in the financial system. From 1 February, banks must limit home lending of six times income (or more) to 20 per cent of their new mortgage lending.

The limit will apply separately to bank owner-occupier and investor lending. Under the limit, each bank will be able to lend, on a quarterly basis, up to 20 per cent of new owner-occupier loans and up to 20 per cent of new investor loans to borrowers with a DTI ratio greater than or equal to six. It will not apply to bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings in order to allow for the smooth functioning of property transactions and avoid constraining incentives for the supply of new housing.

What does the DTI limit aim to achieve?

The DTI limit is intended to prevent an unsustainable rise in household indebtedness during episodes of heightened risk, while not overly constraining credit supply.

Currently, around 6 per cent of new mortgages have a DTI ratio at or equal to six.

Across all banks, the share of new lending to investors with high DTI increased from 8 per cent to around 10 per cent of new lending over the year to the September quarter 2025.

While some increase in higher DTI lending is expected as lower interest rates lift borrowing capacity, APRA believes the limit will manage the possible build-up of risk in housing credit by setting guardrails for the growth of new high DTI loans by individual lenders.

Only a small number of ADIs are expected to be near the limit for high DTI investor lending at this stage.

APRA said the move is expected to have greater impact on investors, who typically borrow at higher DTI ratios than owner-occupiers.

APRA said the change was needed as it has observed a "pick-up in some riskier forms of lending over recent months as interest rates have fallen, housing credit growth has picked up to above its longer-term average and housing prices have risen further".

While high DTI lending is still at a low level, the regulator noted it has started to pick up, albeit driven by high DTI loans to investors.

What's driven the move?

The move comes after APRA flagged that it had been talking to lenders about bringing in new limits. Earlier this month, the regulator warned that high household debt and rising higher-risk lending were heightening vulnerabilities in the financial system.

APRA's System Risk Outlook noted that investor lending had hit record levels in the September quarter, amid falling borrowing costs and low vacancy rates.

APRA warned that this investor activity – combined with an expected rise in high loan-to-valuation ratio (LVR) loans under the government's expanded 5 per cent Deposit Scheme and intensifying competition among lenders for market share – could create pressure to loosen underwriting standards and increase lenders' risk appetite.

At the time, it revealed it had been working with lenders on the practicalities of introducing lending limits for residential mortgages – such as caps on high DTI, investor, or interest-only lending – to ensure these measures can be deployed quickly if required.

A household with an annual income of $100,000 would be restricted to a loan of $600,000. With national median property prices closing in on the $900,000 mark these rules are definitely going to bite hardest on those seeking to enter the market or looking to upgrade if they don't have substantial equity.