APRA's new debt to income limits and what they mean for your home loan

APRA's new debt-to-income limits cap high-DTI mortgages at 20% of lending. Learn how the 6x income threshold affects your borrowing capacity, who's impacted, and what exemptions apply.

APRA has introduced Australia’s first-ever debt-to-income (DTI) limits on mortgages, restricting banks from issuing more than 20% of new home loans to borrowers with debt exceeding six times their annual income. If you’re planning to buy property or refinance, here’s what you need to know about how these new rules might affect your borrowing capacity.

The Australian Prudential Regulation Authority announced these caps in late 2024 as a pre-emptive measure to curb risky lending before it becomes a problem. Unlike previous restrictions that clamped down after lending had already gotten out of hand, this time APRA’s acting early—and that’s actually good news for most borrowers.

Currently, the limits aren’t biting hard. Only about 7% of new lending sits above the six-times threshold, so most people won’t notice immediate changes. But if you’re stretching your borrowing to the max, or if you’re buying investment property, these new rules matter and you’ll want to understand how they work.

What is a debt to income ratio

Your debt-to-income ratio (DTI) is exactly what it sounds like: the total amount you’re borrowing divided by your gross annual income. It’s one of the simplest ways lenders assess whether you can comfortably manage mortgage repayments alongside your other financial commitments.

Here’s how it works. If you earn $100,000 a year and want to borrow $600,000, your DTI ratio is six times your income (6x). That puts you right at APRA’s new threshold. Borrow $650,000 on the same income? You’ve exceeded the cap at 6.5 times.

Banks have always looked at DTI ratios when assessing loan applications, but it’s been an informal guideline rather than a hard limit. APRA’s new rules change that by putting a formal cap on how many high-DTI loans banks can approve. The regulator’s setting a limit of 20% of all new lending to borrowers above six times income applied separately to owner-occupiers and investors.

For context, that 6x DTI threshold is actually pretty generous by global standards. New Zealand recently reduced their DTI cap to 6x after years of stricter limits. The UK has had DTI restrictions since 2014. Australia’s been one of the few developed nations without formal DTI controls, which is partly why APRA’s introducing them now before household debt becomes a bigger problem.

How to calculate your debt to income ratio

Calculating your DTI is straightforward, though lenders might look at it slightly differently depending on your circumstances.

The basic formula: Total Loan Amount ÷ Gross Annual Income = DTI Ratio

Let’s say you’re earning $166,666 a year and want to borrow $1 million. That’s a DTI of exactly 6x ($1,000,000 ÷ $166,666 = 6). You’re sitting right on the limit.

But here’s where it gets more nuanced. Your “debt” includes the total home loan you’re applying for, not just the amount you’re borrowing today. If you already have a $300,000 mortgage and you’re looking to refinance or buy another property with a total debt load of $1 million, that full $1 million counts toward your DTI calculation.

For income, lenders use your gross annual income before tax. If you’re on a salary, that’s easy—just your annual pay. Self-employed? They’ll usually average your last two years of tax returns. Got rental income from investment properties? Some lenders will include 80% of the rental income in your serviceability calculations, though not all of it counts toward improving your DTI.

Most mortgage calculators and borrowing capacity tools will give you a ballpark figure, but actual DTI calculations can vary between lenders. Some banks are more generous with how they assess bonus income, overtime, or irregular earnings. Others take a more conservative approach.

What is a good debt to income ratio

While APRA’s set the cap at 6x income, that doesn’t mean borrowing right up to that limit is a smart idea for everyone.

The sweet spot depends on your personal situation. A couple with steady dual incomes, no kids, and minimal expenses might handle 6x income comfortably. A single parent with variable income and dependents might struggle at 4x.

Banks already assess your ability to service the loan using a buffer rate that’s usually 3% above the actual rate you’ll pay. So even if you’re borrowing at 6%, they’re checking whether you could still afford repayments if rates hit 9%. That serviceability test often bites harder than the DTI ratio.

How APRA’s new limits work

APRA’s approach is more surgical than their previous lending restrictions. Rather than capping all high-DTI lending, they’re allowing banks flexibility while setting a hard ceiling.

Under the new rules, banks can still approve loans above 6x DTI—they just can’t let those loans make up more than 20% of their total new lending. The 20% cap applies separately to owner-occupier loans and investor loans, which is important because investor lending has historically been riskier.

Currently, about 10% of investor loans exceed 6x DTI, while only 4% of owner-occupier loans sit above that threshold. That means banks have room to move, particularly for owner-occupiers. But if demand for high-DTI loans spikes, banks will need to get pickier about who they approve.

There are two key exemptions. First, bridging loans for owner-occupiers don’t count toward the cap. That makes sense—bridging finance is temporary, usually just covering the gap between buying a new home and selling your old one. Second, loans for purchasing or constructing new dwellings are exempt, which supports government efforts to boost housing supply.

The timing of APRA’s intervention is deliberate. Interest rates have started falling after two years of increases, credit growth is picking up, and property prices are rising in most capital cities. APRA’s seen this movie before—when lending standards slip during boom times, it creates problems down the track. They’re trying to head that off early.

APRA Chairman John Lonsdale made it clear they’re monitoring the situation and prepared to tighten further if needed. “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.

Who is most affected by the new DTI limits

These limits won’t touch most borrowers, but they’ll definitely impact a few specific groups.

Property investors are the most exposed. About 10% of investor loans already exceed the 6x threshold, and that figure’s been climbing. If you’re building a property portfolio and relying on rental income to justify higher borrowing, you might find banks less willing to stretch as they approach their 20% cap.

Investors typically borrow higher multiples of their income because they’re factoring in rental returns. But APRA’s worried that investor lending drives price growth more than owner-occupier activity, and property investors are more likely to sell quickly if prices fall because they’re not emotionally attached to the property as their home.

First home buyers using the government’s 5% deposit scheme might also feel the pinch, though not immediately. About 4% of owner-occupier lending already exceeds 6x DTI, and a decent chunk of that comes from first home buyers stretching to get into the market on smaller deposits. If banks start hitting their 20% cap on high-DTI lending, these buyers could find themselves competing for a limited pool of available high-DTI approvals.

High-income earners buying premium property could also hit challenges. Just because you’re earning $300,000 doesn’t mean you can automatically borrow $2 million anymore. If you’re looking at loans above $1.8 million on that income, you’re in the high-DTI category and competing with other borrowers for a spot within the bank’s 20% allocation.

Self-employed borrowers might find the new rules particularly frustrating. Banks already assess self-employed income more conservatively, often averaging the last two years of taxable income. If your business had a rough year but you’re forecasting strong growth, that averaged income figure can limit your DTI capacity more than it would for someone on a stable salary.

Most borrowers won’t notice any difference. If you’re borrowing 4x or 5x your income, banks still have plenty of capacity to lend to you. The new rules are really about preventing the riskiest lending from getting out of hand, not about restricting everyone.

How banks are responding to DTI limits

For most banks, APRA’s new rules aren’t an immediate problem—they’re a future constraint to manage.

Only a handful of lenders are approaching the 20% threshold for high-DTI lending, particularly in the investor space. That means banks still have headroom to approve loans above 6x income, but they’re starting to think more strategically about how they allocate that capacity.

Expect banks to get pickier. If you’re applying for a loan above 6x DTI, banks will scrutinise your application more carefully. They’ll want to see:

• Strong, stable income with minimal risk of disruption
• Minimal existing debts like credit cards, car loans, or personal loans
• Solid deposit showing you’ve got genuine savings rather than relying on gifts or guarantees
• Low living expenses relative to your income, proving you can handle higher repayments

Banks might also start pricing high-DTI loans differently. While there’s no explicit premium yet, lenders could charge slightly higher rates or require bigger deposits for borrowers exceeding 6x income to compensate for the additional risk and regulatory attention.

Some borrowers are rushing to lock in approvals before banks tighten their approach, particularly in the investor market where the limits are biting harder. If you’re planning to buy an investment property with high leverage, getting pre-approval sooner rather than later could give you more options.

The big question is what happens if property prices keep rising and more borrowers naturally drift into the high-DTI category. If 15% or 18% of lending starts exceeding 6x DTI, banks will need to make hard choices about who gets approved and who doesn’t. That’s when the limits could start affecting more everyday borrowers.

Impact on investment property lending

Property investors are feeling the squeeze more than owner-occupiers under APRA’s new rules, and that’s entirely intentional.

The Reserve Bank of Australia flagged in its recent Financial Stability Review that investor lending poses particular risks during downturns. “Investor loans may prove to be at greater risk of default in a severe downturn,” the RBA noted, explaining that property investors are more likely to sell if they expect prices to fall because the property isn’t their home.

Historically, investor lending has driven property price booms harder than owner-occupier activity. When investors pile into the market, they’re often chasing capital growth rather than somewhere to live, which pushes prices higher faster. APRA’s worried about that dynamic, particularly as interest rates fall and credit growth accelerates.

Currently, 10% of investor loans exceed the 6x DTI threshold—more than double the 4% rate for owner-occupiers. That means banks have less room to manoeuvre before hitting their 20% cap on high-DTI investor lending. If demand picks up, banks will need to start rejecting investor applications that they might have approved six months ago.

Investors using rental income to boost their borrowing capacity should pay particular attention. Most banks will include 80% of expected rental income when assessing serviceability, but that rental income doesn’t always lift your DTI ratio in the same way. If your actual salary is $100,000 and you’re borrowing $700,000, you’re at 7x DTI even if the rental income means you can service the loan.

The new dwelling exemption offers a potential workaround. Loans for purchasing or building new properties don’t count toward the 20% high-DTI cap, so investors buying off-the-plan apartments or newly constructed homes might find banks more willing to lend. That aligns with government policy encouraging new housing supply, but it also creates a two-tier market where new builds get preferential lending treatment.

Exemptions you should know about

APRA built two important exemptions into the new DTI framework, and understanding these could make a big difference if you’re in specific situations.

Bridging loans for owner-occupiers don’t count toward the 20% high-DTI cap. Bridging finance lets you buy your next home before selling your current one, which means you’re temporarily carrying two mortgages. That could easily push you above 6x your income, but since it’s a short-term situation (usually 6-12 months), APRA doesn’t consider it the same risk as someone permanently borrowing 7x or 8x their income.

This exemption matters if you’ve found your dream home but your current place hasn’t sold yet. Banks can still approve bridging finance without worrying about eating into their high-DTI allocation. That said, bridging loans come with their own risks—you’re paying two mortgages until your old home sells, and if the market turns, you could be stuck carrying both longer than expected.

Loans for new dwellings also get a pass. Whether you’re buying off-the-plan or building from scratch, financing for new housing doesn’t count toward the DTI cap. APRA’s explicitly supporting government efforts to boost housing supply, and there’s broader economic benefits to encouraging construction activity.

For buyers, this creates an interesting dynamic. If you’re pushing against the DTI limit and considering two similar properties—one existing, one newly built—the new property might be easier to finance because banks don’t need to factor it into their high-DTI cap. That could shift some demand toward new builds, particularly in markets where off-the-plan apartments and house-and-land packages are readily available.

The government’s 5% deposit scheme for first home buyers isn’t technically exempt from DTI limits, but borrowers using that scheme are still counted in the overall owner-occupier bucket. Since only 4% of owner-occupier lending currently exceeds 6x DTI, and the cap is 20%, there’s still plenty of room for first home buyers to access the scheme even if they’re borrowing at higher DTI ratios.

What this means for your borrowing capacity

If you’re planning to buy property in the next 12 months, here’s how APRA’s DTI limits might affect what you can actually borrow.

For most people borrowing below 6x income, nothing changes. You’ll still face the same serviceability tests banks have always applied, where they check whether you can afford repayments at an interest rate 3% higher than what you’ll actually pay. That buffer often constrains borrowing more than DTI ratios do.

If you’re planning to borrow close to or above 6x your income, you need a clear strategy:

Boost your income in ways lenders recognise. A salary increase, confirmed overtime, or consistent rental income from existing properties can all improve your DTI ratio. Just make sure you’ve got at least three months of evidence—most banks won’t count new income until it’s proven.

Reduce existing debts before applying. Pay off credit cards, car loans, or personal debts. Even if you’re not using the full credit limit on your cards, banks assess your borrowing capacity as if you are. Cancelling unused credit cards can meaningfully increase how much you can borrow.

Consider a bigger deposit. While DTI is calculated on the total loan amount rather than the loan-to-value ratio, having a larger deposit shows financial discipline and might make banks more comfortable approving a high-DTI loan within their 20% allocation.

Shop around. Different banks assess income differently, particularly for self-employed borrowers, contractors, or people with bonus income. One lender might count 100% of your overtime while another only includes 50%. That can make a significant difference to your borrowing capacity and your DTI ratio.

Time your application strategically. If banks are approaching their 20% high-DTI cap late in a quarter, they might be less willing to approve marginal applications. Early in a new quarter, when they’ve got fresh allocation to work with, you might have better luck.

For property investors, the picture’s tighter. If you’re already holding multiple investment properties and looking to add another, banks will assess the total debt across all your loans. Even if each individual property stacks up on rental yield and serviceability, your overall DTI could limit how much further you can expand your portfolio.

The new rules don’t change your actual ability to service a loan—if you can afford the repayments, you can afford them whether APRA’s set a limit or not. But they do change whether banks can approve that loan, which is a different question. You might be perfectly capable of managing a $1.2 million mortgage on $180,000 income (6.7x DTI), but if the bank’s already approved too many high-DTI loans that month, you could be knocked back.

Looking ahead and will these limits get tighter

APRA’s made it clear these initial DTI limits aren’t necessarily the end of the story. They’re monitoring lending patterns and prepared to tighten further if needed.

The regulator’s particularly watching investor lending. If high-DTI investor loans keep climbing, APRA might introduce investor-specific caps below the current 20% threshold. They’ve flagged this explicitly, saying they’ll “consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards.”

What would trigger tighter limits? Probably a combination of factors:

• Credit growth accelerating too quickly, particularly in investor lending
• House prices rising sharply in major cities, driven by investors rather than owner-occupiers
• Banks loosening lending standards to compete for market share, approving loans they’d normally reject
• Economic uncertainty increasing, making high-debt households more vulnerable

The Reserve Bank’s recent interest rate cuts create a tricky environment. Lower rates encourage borrowing and push property prices higher, which could naturally shift more lending into the high-DTI category even if household incomes are rising too. If 15-20% of lending starts clustering near the 6x threshold, APRA might decide to lower the cap to 5x or 5.5x to maintain their intended buffer.

This isn’t APRA’s first rodeo with macroprudential lending restrictions. Between 2014 and 2018, they imposed limits on investor lending growth (capped at 10% annual growth) and interest-only loans (restricted to 30% of new lending). Both sets of restrictions worked—they cooled the market without crashing it—but they also created frustrations for borrowers caught in the middle of applying when rules changed.

The difference this time is APRA’s acting early rather than responding to a crisis. That’s a more measured approach, but it also means the rules could evolve as conditions change.

For borrowers, the key takeaway is this: don’t assume the current framework is locked in forever. If you’re planning to borrow at high DTI ratios, understand that approval might get harder if APRA tightens the screws. Getting pre-approval sooner rather than later removes some of that uncertainty, particularly if you’re buying investment property.

What you should do next

If APRA’s DTI limits might affect your borrowing plans, here’s how to prepare:

Check where you sit. Calculate your debt-to-income ratio using your gross annual income and the total loan amount you’re considering. If you’re below 6x, you’re unlikely to face any restrictions. Above 6x, you’ll want to understand how banks are managing their high-DTI allocations.

Talk to a mortgage broker. Brokers have insight into which lenders still have capacity for high-DTI approvals and which ones are getting close to their limits. They can also help structure your application to maximise your borrowing capacity within the new constraints.

Get pre-approval early. If you’re planning to buy in the next 3-6 months and you’re borrowing above 6x income, locking in pre-approval now gives you certainty. Banks can’t withdraw pre-approval just because they’ve hit their DTI limits later—you’ve secured your spot in their allocation.

Clean up your finances. Pay down credit card debt, close unused accounts, and make sure your income documentation is current. The stronger your financial position, the more comfortable banks will be approving a high-DTI loan.

Consider your alternatives. If borrowing above 6x income is proving difficult, think about whether a larger deposit, lower purchase price, or co-borrower might work better. Sometimes adjusting your plans slightly can open up more lending options.

These new DTI limits aren’t designed to stop you buying property—they’re designed to prevent lending getting dangerously stretched across the system. For most borrowers, they’ll barely notice the change. But if you’re pushing against the limits, understanding how they work and planning accordingly can make the difference between approval and rejection.

Further questions

This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.