Australia’s banking regulator has ordered a limit on approvals of certain home loans.
The limit will apply to high debt-to-income (DTI) loans, where the amount borrowed is more than six times the borrower’s annual household income.
From February, no more than 20% of a bank’s new loans can fall into this category.
The Australian Prudential Regulation Authority (APRA) says the move will combat risks associated with rising housing debt.
The banking regulator
APRA is the government agency responsible for supervising banks, insurers, credit unions, and superannuation funds to ensure they remain financially sound and can withstand economic shocks.
It doesn’t set interest rates (that’s the Reserve Bank‘s job), or directly control the housing market.
Instead, it works to protect the stability of the entire financial system.
Changes
From 1 February 2026, banks will need to ensure less than 20% of their new home loans are made to borrowers taking on a debt six times their annual income or more.
This limit applies separately to both people buying homes to live in and people buying investment properties.
It isn’t expected to immediately affect most people’s ability to get a loan, since only a small number of banks are currently near the 20% threshold.
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APRA says these changes will “pre-emptively contain a build-up of housing-related vulnerabilities in the financial system.”
It added that investors are more likely than owner-occupiers to take on these loans.
APRA noted that “as interest rates have fallen, housing credit growth has picked up to above its longer-term average and housing prices have risen further.”
Treasurer Jim Chalmers said the regulations “will help with financial resilience and housing affordability.”
Exemptions
The limit won’t apply to bridging loans for owner-occupiers or loans for building new homes.
A bridging loan is a short-term loan made between buying a new property and selling an existing one. Once the existing property is sold, borrowers use the proceeds to pay off the bridging loan.
APRA says it wants to avoid disrupting property transactions or discouraging new housing construction.
Criticism
The Greens welcomed the change, but said more needs to be done to address what they see as a housing crisis driven by property investors crowding out first-home-buyers.
Greens Senator Barbara Pocock said: “APRA has used its toolkit in the past to cool investor lending and it led to the greatest stabilisation of house prices in 30 years, they need to take that decisive action again.”
APRA said it would consider additional investor-specific limits.
