Clampdown on debt-to-income ratios simply good prudential management
To little surprise of the mortgage finance industry, the Australian Prudential Regulation Authority (APRA) is moving to clamp down on what it sees as risky lending practices in the property investor space.
From 1 February 2026, banks and other authorised deposit-taking institutions (ADIs) will only be able to lend up to 20% of new mortgages at a debt-to-to-income (DTI) ratio of six times or more.
With investor lending taking up an increasingly larger piece of the mortgage market, speculation was rife of an impending move from the regulator.
While the announcement was unsurprising, Katie Thomas (pictured), award-winning managing director of Focus Finance, also called it “a policy update that feels very familiar”.
“DTI considerations have been part of lender credit policy for years, usually sitting around six times income, so APRA’s announcement simply puts a neat frame around existing behaviour,” said Thomas.
According to Thomas, DTI hasn't been a particularly hot topic of late given rates and servicing buffers on shadings and inflated rate buffers do the job of keeping things well within appetite under six-times DTI.
“With higher interest rates and robust serviceability measures, most borrowers naturally land around 4.5 to five-times income long before a DTI cap becomes relevant. In other words, the market already packed its safety parachute.”
Business as usual
For brokers, Thomas does not anticipate anything dramatic on the horizon following APRA’s announcement, considering:
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Deals rarely approach six-times
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Serviceability remains the real decision maker and ceiling
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Lenders are already using buffers and settings “that keep things comfortably conservative”
Sustainable lending is the name of the game
“APRA’s move to introduce formal DTI limits is a solid reminder that the lending landscape is all about stability, not surprises,” said Thomas. “For seasoned brokers and borrowers, it’s less of a plot twist and more of a business as usual on prudential protection.”
DTI limits will also serve to reinforce market stability should borrowing capacity start to blow out again amid falling interest rates and a possible thinning of existing serviceability buffers.
“We fully support any policy that promotes responsible, sustainable lending – that’s the heart of what we do every day,” said Thomas. “Helping clients borrow safely isn’t just the rulebook; it’s the whole game plan.”
So should borrowers be at all worried about these changes?
“No! This isn't limiting their options further than they should've been anyway, this is simply ensuring the upper end of lending is built out in a sustainable way – very important to do in a climate where yield compression is a big factor.
“This doesn't change the outlook on the ability for wealth creation through property, this just ensures you have a sustainable portfolio with sound scaffolding in place to build it out as it should've always been from the outset.”
Short-term impacts to be modest
The Mortgage and Finance Association of Australia (MFAA) expects APRA’s announcement to have a “modest” impact on brokers.
“Once the cap comes into effect, the MFAA would expect transparent, consistent lender policy settings across all distribution channels,” MFAA chief executive Anja Pannek said. “Brokers need to be able to support borrowers navigating financing their home or investment property, so it’s important they can do so in an informed way and that consumers receive the same opportunities regardless of channel.”
The broker association said it will “closely monitor any emerging effects on borrower pathways, refinancing options, and competition between distribution channels”.
