The regulator says the move aims to safeguard financial stability by addressing what it sees as rising risks in the housing market.
From 1 February 2026, banks will be limited to handing no more than 20% (by value) of newly written home loans to borrowers with DTI ratios above six times a household’s income.
Banks will have separate limits for lending to owner-occupiers and property investors, the latter of which generally have higher DTI ratios and will likely realise a greater impact.
APRA has described the cap as a “guardrail” and notes it’s currently not binding.
“Rising indebtedness has in the past often been associated with an increase in riskier lending and rapid growth in property prices,” APRA chair John Lonsdale said.
“The signs of a build-up in risks are chiefly concentrated in high DTI lending, especially to investors.”
APRA doesn’t expect the limit to have a near-term impact on households’ ability to secure new home loans, and only a small number of banks are expected to be close to breaching the cap.
High DTI lending has grown recently, albeit from a low base, adding to already elevated household debt levels – considered a key vulnerability.
Combined with a strong jobs market, APRA believes these dynamics justify the first use of such a DTI limit in its history.
While strong investor activity can turbocharge the housing market and impact financial stability, the watchdog isn’t yet anticipating a deterioration in lending standards seen in previous investor booms.
“Although broader risks are contained, we have seen in the past that they can build rapidly when interest rates are low or declining, borrowers extend themselves and competition among banks for new mortgage lending intensifies, which can lead to easing lending standards.” Mr Lonsdale said.
The watchdog will consider additional restrictions, including those specifically aimed at property investor lending, if it sees risks rising or lending standards slipping.
The move comes after the RBA handed down three cash rate cuts in 2025, with falling home loan rates putting upwards pressure on property prices.
This has seemingly led to an uptick in riskier home loans being written – particularly to property investors.
Property investors accounted for a record share of new mortgages in the September quarter, representing two in five home loan borrowers.
Many appear to have been racing to buy ahead of an expected surge in first-home buyer activity following October’s expansion of the 5% Deposit Scheme.
The surge in investor lending had fuelled previous speculation that APRA might bring back investor-targeted lending caps similar to those used in the 2010s.
Such speculation was based on comments made by Mr Lonsdale in July, when he said the watchdog was readying banks to implement macroprudential measures to address risks.
To avoid constraining new housing supply, APRA has confirmed that loans for the construction or purchase of new homes will be excluded from the cap.
Bridging loans for owner-occupiers will also be exempt to prevent disruption to property transactions.
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