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- A Sydney mortgage broker said some banks are already cracking down on new investor lending beyond regulator requirements
- It comes just five weeks after new restritions on the number of home loans with high debt-to-income ratios were imposed
- Investors financing multiple investment properties are said to have been impacted most so far
Sydney mortgage broker Alex Veljancevski said one major bank is already rejecting loan applications on the basis of higher debt-to-income (DTI) thresholds, mainly affecting investor lending.
New rules set by the Australian Prudential Regulation Authority (APRA) came into effect on 1 February, restricting the number of new home loans where debt is more than six times borrower income.
Under the new regulations, banks are not permitted to approve more than 20% of new loans over the threshold.
Big banks quick to act
Mr Veljancevski said major banks are already restricting their lending to those with higher DTI ratios, particularly those where the ratio is over seven, just five weeks after new APRA limitations came into effect.
"Previously, if you could meet serviceability tests, even though DTI would be above seven, the loan would get approved as long as you're hitting the affordability - the 3% serviceability buffer - and if everything was checking out," he told Savings.com.au.
"We saw a bit of a pullback last month with one of the major lenders confirming that if the DTI is above seven, it's an automatic no - they won't consider it."
See also: What is home loan serviceability and how is it calculated?
Investors bearing the brunt
Mr Veljancevski said that, so far, the new APRA rules are largely affecting investors seeking to finance multiple investment properties - at least five.
"So, it's sophisticated investors where they've got quite a bit of lending but still have capacity to borrow more due to high incomes and so forth," he said.
"They are still meeting the servicing test but now they're restricted by DTI."
It's likely the outcome APRA was aiming for when it announced the new restrictions in late November, saying it had noted a pick up in "riskier lending" as interest rates had fallen during 2025.
The latest APRA data shows new loans with a debt-to-income ratio above six ticked up 0.5% in the September quarter to account for 6.1% of all new loans - up from 5.6% the previous year.
Investors in APRA's sights
APRA's new rules came hot on the heels of new data showing record investor lending in Australia during the September quarter last year, when new investor loans accounted for 40% of all new home loans.
Although the regulator said the limits would apply separately to owner occupier and investor lending, markets understood investors would be most affected by debt-to-income restrictions.
The latest lending data shows investor lending remained around the same elevated levels in the December quarter.
APRA provided a two-month window before its new lending restrictions kicked in on 1 February so it remains to be seen what effect they will have on home lending and the housing market more broadly.
Mr Veljancevski said so far, he has not seen the changes have any effect on owner-occupier and smaller-scale investor lending.
"We haven't noticed owner occupiers hitting the higher DTI so that hasn't been a concern at this point," he said.
"And the majority of investors, the ones that have one or two investment properties, they're still OK. We're not seeing any issues with them at this point in time."
Investors being hit on many fronts
Property investors are also facing shifting goalposts amid speculation there may be changes to the capital gains tax discount in the May federal Budget.
Investors who hold a property for over 12 months are entitled reduce their taxable capital gains by 50% when the property is sold.
There's talk the discount may be reduced although it's not clear whether the tax change will apply retrospectively.
There's also been speculation the tax benefits associated with negative gearing will also be limited to just two properties per investor.
Mr Veljancevski said despite challenges to property investment business models on the horizon, most investors are looking at longer-term benefits.
"Their driving factor is to create wealth over a long period of time, to retire comfortably or secure a better financial future, so I don't think it's going to have a major impact if it was to change," he said.
"I think the long-term future of property investment will still be there."
Investors looking to non-bank lenders
Mr Veljancevski said larger-scale property investors locked out of bank lending are now exploring non-bank lending options which fall outside APRA regulations.
"If you're hitting serviceability tests, if you're passing those with non-bank lenders, they're more willing to lend on a higher DTI deal," he said.
"That's kind of their space and those investors that are now impacted from the majors can explore those non-bank lending options because they're still happy to lend."
Non-bank lenders are not governed by APRA's prudential regulations.
While still bound by responsible lending obligations, non-bank lenders generally offer more flexible lending criteria and are overseen by financial regulator ASIC.
"If an investment makes sense... if the major banks are saying no, non-banks provide a great space for them to continue creating wealth, especially if they can afford it," Mr Veljancevski said.
"It just means they have to explore some alternative options."
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