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Last week, the Australian Prudential Regulation Authority (APRA) announced it was bringing in new debt-to-income (DTI) limits to pre-emptively constrain “a build-up of housing-related vulnerabilities in the financial system”.
From 1 February 2026, banks must limit home lending of six times income (or more) to 20 per cent of their new mortgage lending. However, APRA has allowed exemptions for certain loan types, including loans to buy or build new homes and bridging finance for owner-occupiers.
While the measure intends to ensure that the financial system is protected from growing numbers of highly leveraged borrowers – particularly investors – some economists have warned that the move may unintentionally constrain other borrowers, such as first home buyers.
Finance Brokers Association of Australia (FBAA) regulatory compliance specialist David Carson warned: “This is a very blunt tool that has potential to hurt some groups more than others. APRA has effectively decided you can’t live in a home that costs more than six times your current income unless you have a very large deposit," Carson said.
“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.
“It poses a very real risk that APRA may be putting unnecessary barriers in place for aspiring homeowners.
“Aspiring homeowners were recently given some encouragement with the expansion of the 5 per cent deposit scheme, allowing more prospective homeowners to move into the market sooner. The APRA debt-to-income ratio cap shifts the power back to those with large deposits.
“The six times limit also overrides the responsible lending rules and consideration of whether a consumer has capacity to service a higher loan based on their expectations of future wage growth, how they manage their household expenses and how much capacity they have to service any proposed loan," he said.
Carson continued: “The obvious question is how banks will determine the lucky 20 per cent they allow to exceed the six-times limit.
“How will that cohort be chosen by the banks?
“This has the very real potential to throttle the capability of the ordinary family borrower to buy a property and realise the benefits of home ownership.
“It is a material intervention from APRA, reminiscent of other interventions, including the 3 per cent serviceability buffer on home loans and back in 2014 and 2017 respectively, placing limits on banks for the proportion of investor and interest-only loans they could hold on their books.
“It is usually the case that those most heavily affected by these actions are the ones closest to the thresholds. In this case, aspiring homeowners with lower household income and smaller deposits.
“APRA says it has data that suggests this might have a bigger impact on investors than home owners although it is hard to see this being the case. APRA has also said there aren’t many lenders near the 20 per cent threshold, leading them to believe the immediate effects may be limited.
“With legitimate questions about how accurate their modelling and how robust the data is that these new rules are based on, the value of APRA’s new approach is open to question.”
Writing in an economic update on Friday (28 November), Westpac’s chief economist, Luci Ellis, also said that “there will likely be some distributional impacts, particularly on investors and younger home-buyers”.
Ellis explained that the incoming APRA measure is a DTI limit, not a loan-to-income (LTI) limit.
As such, this means that the limit is on the borrower’s total debt – not just the new loan – and could include things like HECS debt and buy now, pay later balances.
Given that many young adults tend to have a higher proportion of HECS debt and BNPL debt, Ellis said that the DTI limits “might be particularly constraining for younger, potential first-home buyers”.
While Ellis noted that investors, unincorporated small businesses, and other mortgagors are also likely to hit DTI limits, she added that some of these loans are “probably not that risky, which is why the APRA rules allow for some high-DTI lending to occur but limit how much”.
She continued: “Still, there is a balance to be struck between setting a tight limit and preventing good borrowers from getting credit, something other countries’ regulators have previously highlighted.”
Ellis also noted that the current share of high-DTI lending is “well below the limit” (around 6 per cent, according to APRA stats) and that APRA currently believes home lending standards to be sound overall.
The Westpac chief economist concluded: “At the margin, we see this policy announcement as slightly dovish for the interest rate outlook. With macroprudential tools already in place, it will be harder to argue that a buoyant housing market requires tight monetary policy...
“Given the uncertainties around how macroprudential tools affect outcomes, the risks are not one-sided.”
QLD investors will be hard hit: REIQ
Concerns have been raised by several other commentators regarding the new limits, particularly for investors in Queensland.
The Real Estate Institute of Queensland (REIQ) has also been urging caution about the new DTI limits, suggesting that APRA should “closely review the measure to ensure it does not undermine Queensland’s already fragile rental market”.
REIQ CEO Antonia Mercorella acknowledged that the measure is intended as “a preventative safeguard against overly leveraged lending”, but added that as this is the first time a restriction has been imposed to a debt-to-income ratio, it was “essential that APRA keeps a close eye on its real-world impacts – especially for property investors, who are the backbone of Queensland’s rental market”.
The REIQ CEO continued: “We support prudent lending, but we caution against measures that inadvertently penalise responsible investors and reduce housing availability.
“While on the surface this change appears modest, the risk lies in gradually squeezing investors out of the market at a time when Queensland desperately needs more rental supply.
“Queensland has a higher proportion of renters than the national average, and investors currently account for around two in every five new home loans in our state.
“In simple terms, fewer investors means fewer rental properties, which ultimately pushes rents even higher for tenants already under pressure.
“Investors are not the enemy in the housing affordability debate, but a critical part of the solution. In a state like Queensland that relies so heavily on private investors to provide rental homes, policy settings must support and not stifle their participation.”
The REIQ warned that overly restrictive lending measures – when combined with existing supply constraints – risk worsening the imbalance between rental demand and available housing.
“The focus should be squarely on unlocking more homes – not constricting one segment of the market. We need a balanced approach that supports both rental supply and pathways to home ownership,” Mercorella said.
[Related: Lenders must limit high DTI lending: APRA]