New lending limits on high-debt borrowers could spur on a rush of activity ahead of February when the new measures will be enforced.
The banking regulator on Thursday announced new limits on high debt-to-income mortgages for both owner occupiers and investors, as lower interest rates lead to a pickup in ‘riskier’ lending.
From February 2026, the Australian Prudential Regulation Authority (APRA) will prevent banks from lending more than 20% of new home loans to owner occupiers and investors with a debt ratio of six times their income or more.
APRA chair John Lonsdale said while banking lending standards remained sound, the regulator had seen risky lending pick up in recent months as property prices reached new highs.
“Although broader risks are contained, we have seen in the past that they can build rapidly when interest rates are low or declining, borrowers extend themselves and competition among banks for new mortgage lending intensifies, which can lead to easing lending standards,” Mr Lonsdale said.
From February, lenders will have new limits enforced on high-debt loans. Picture: Getty
REA Group senior economist Eleanor Creagh said by tightening the distribution of riskier lending while the labour market remains resilient and arrears are low, both households and banks have more room to absorb potential future shocks.
“When prices are rising briskly and at record levels, some borrowers feel an opportunity cost of waiting and pressure to buy sooner than later,” Ms Creagh said.
“Australia already has some of the highest household debt levels in the world. In that context, each increase in borrowing at very high debt-to-income multiples amplifies risks in future downturns rather than sustainable housing outcomes today.”
But there was a risk that the measures could see a pull forward in demand, she added.
“Borrowers who know they may fall into the high debt-to-income category could be incentivised to move before February, particularly more leveraged investors.”
Property prices have risen for 10 straight months, with borrowers taking on more debt to purchase a home. Picture: Getty
Mr Lonsdale said the regulator has not ruled out further intervention, specifically targeting investors.
“We will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards,” he said.
It comes as investors pile back into the property market, lured in by lower interest rates, a strong rental market and expectations that property prices will continue to rise over the coming year.
Lending data from the Australian Bureau of Statistics showed the number of loans issued to investors during the September quarter reached a record high.
Source: PropTrack Terri Scheer Investor Report
Almost 60,000 investor loans were approved during the three months to September, up 13.6% from the June quarter and 12.3% higher than a year ago.
“Both the number and the value of new investment loans reached record highs in September,” ABS head of finance statistics Mish Tan said.
Investment loans now account for around 40% of all new loans, the highest share since 2017.
Property boom spurs on activity
The latest PropTrack Home Price Index showed Australia’s housing market reached a new record high in October, with the property market lifting for ten straight months and momentum gaining pace.
The three interest rate cuts delivered from the RBA this year have already added tens of thousands of dollars to the average household’s borrowing capacity, and expanded government support such as the 5% deposit scheme is driving increased competition among buyers. First-home buyers and investors often compete for properties in a similar price range.
With three quarters of consumers expecting home prices will be higher in 12 months time, according to Westpac, investors are returning to the market.
But first-home buyer activity has also been on the rise this year, with expanded support through the government’s guarantee scheme in October spurring on a flurry of activity, according to national real estate agencies.
Eligible first-home buyers using the scheme can purchase a home with a deposit as little as 5%, shaving years off the average saving timeline. From 1 October, the number of places in the scheme became uncapped, there were no longer income caps, and the price threshold for eligible properties was increased to better reflect home prices in each capital city and region.
APRA chair John Lonsdale said riskier forms of lending has picked up in recent months. Picture: Supplied
National real estate agency Raine & Horne said open home attendances were 10% higher, on average, in October 2025 compared to September 2025, which it attributed to expanded government support for first-home buyers.
“The 10% surge in attendance at Raine & Horne open for inspections nationally is being driven, in part, by the Home Guarantee Scheme, which was expanded to include all first-home buyers from 1 October,” Raine & Horne executive chairman Angus Raine said.
“However, the increase in first-home buyer activity is having a ripple effect that is extending beyond entry-level properties, and helping to drive prices higher across the broader market as established home owners look to upgrade to their second, or third, properties.”
English (US) · 