- The regulator is stepping in to limit what it deems risky investor loans from 1 February
- Banks will only be allowed to approve up to 20% of new home loans where the debt-to-income ratio is more than six times the borrower's income
- The new limit will apply separately to owner occupier and investor lending
- The intervention comes amid record investor lending levels in Australia
From 1 February, banks will only be allowed to approve up to 20% of new home loans where the debt-to-income ratio is more than six times the borrower's income.
But the Australian Prudential Regulation Authority (APRA) says the limit will apply separately to owner occupier and investor lending.
It said investors would be most impacted as they tend to borrow at higher debt-to-income levels than owner occupiers.
The regulator made the announcement on Thursday morning after warning last week it had noted a pick-up in riskier lending in recent months as interest rates had fallen.
However, as illustrated below, high debt-to-income ratio loans make up an incredibly small pool of new loans written over the past several quarters.
Nonetheless, markets took it as a sign APRA was preparing to step in to limit record levels of investor lending in the housing market.
History repeats
The last time investor lending was at similar levels, more than a decade ago, APRA moved to stop banks from growing their investor loans by more than 10% annually.
This time, APRA is targetting budding growth in high debt-to-income loans, which it says are largely being driven by new investor lending.
APRA said it's intervening early to contain the potential build-up of housing-related vulnerabilities in the financial system.
It said while overall banking standards remain sound, housing credit growth has picked up above its longer-term average while housing prices are escalating accordingly.
APRA said if left unchecked, higher debt-to-income lending at a time of already high household debt could undermine the banking sector and household financial resilience down the track.
APRA will further intervene if needed
APRA chair John Lonsdale (pictured above) said the new limit is expected to affect only a small number of banks at this stage.
"At this point, the signs of a build-up in risks are chiefly concentrated in high DTI (debt-to-income) lending, especially to investors," he said.
"While strong investor activity can amplify housing lending and price cycles that can impact financial stability, we are not yet seeing signs of the broad-based build up of housing vulnerabilities including a deterioration in lending standards that we have seen in previous episodes of strong investor activity."
He warned APRA would consider further limits, including investor-specific limits, if it sees financial risks rising or a decline in banks' lending standards as competition for new mortgages continues.
Housing industry warning on investor handbrake
But the housing industry has warned the regulator not to get too heavy-handed on restricting investor lending.
HIA (Housing Industry Association) said investors were responsible for delivering 42% of new detached homes in 2024/25, critical in solving Australia's housing crisis.
HIA chief economist Tim Reardon said the country needs more investors building new homes, not fewer.
"Investors have high LVRs (loan-to-value ratios) because they typically have a deep and diverse set of investments outside of the housing market," Mr Reardon said.
Although APRA's intervention doesn't cover construction loans, he warns investors are still needed to supply rental properties.
"This continues the belt and braces approach to financial regulations that has seen mortgage arrears in Australia approaching zero," Mr Reardon said.
"We have seen these ill-timed interventions from APRA and ASIC before. In the five years prior to the pandemic, they intervened to restrict lending due to their concerns the market might over-supply housing."
He said it should be banks that determine if an individual can service a loan, not the government.
Last week, property industry economist Joel Bowman said record investor lending isn't posing the same threat to the financial system as it had in the past.
Listen to Dr Bowman share his views on investor lending on the Savings Tip Jar podcast.
What does it mean for homebuyers?
The limit on risky investor lending should theoretically help to give owner occupiers, particularly first homebuyers, a leg-up in a heated property market.
First homebuyers are active in the lower and middle quartiles of the market after the launch of the federal government's recently expanded 5% Deposit Scheme from 1 October.
Analysts say they are largely competing with investors who have been spurred on by falling interest rates and rental growth in recent months.
The APRA limit may take some heat out of the market after it takes effect on 1 February.
It's also increasingly unlikely there will be further interest rate cuts in 2026 which may also quell investor activity.
That said, property analysts are expecting housing prices - and rents - to reach record levels around Australia in 2026, although there is expected to be some tapering in buyer activity by the end of next year.
It should be noted the APRA directive will only affect banks and other authorised deposit-taking institutions (ADIs).
Non-bank lenders have different lending standards and fall under the regulatory umbrella of the Australian Securities and Investments Commission (ASIC).
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
