Australia’s banking regulator, the Australian Prudential Regulation Authority (APRA), will impose limits on high-risk home loans starting February 1, aiming to curb the rapid buildup of household debt.
APRA announced that no more than 20 per cent of new loans approved by banks can have a debt-to-income (DTI) ratio above six. For example, a household earning $100,000 annually would only be allowed a loan up to $600,000 under this rule. The cap applies separately to owner-occupier and investor loans to prevent investors from dominating the market.
APRA Chair John Lonsdale said the measure is pre-emptive, addressing risks linked to rising property prices and high household indebtedness. “Rising indebtedness has often been associated with riskier lending and rapid growth in property prices,” he said.
The government has supported the move, with Treasurer Jim Chalmers saying it will improve financial resilience and housing affordability. However, Greens Senator Barbara Pocock criticised the cap as insufficient, calling for stricter limits on investor loans, which she says are worsening the housing crisis.
APRA noted that only a small percentage of new loans currently exceed the DTI limit, but some banks are already close to the 20 per cent threshold. Analyst Jon Mott said the cap is unlikely to have immediate effects, predicting that interest rate hikes by the Reserve Bank will play a larger role in cooling the housing market next year.
Loans for new construction and bridging finance are excluded from the cap to avoid disrupting home building projects. The Australian Banking Association welcomed APRA’s targeted approach, highlighting that maintaining safe access to finance is crucial.
