Australia to cap high debt-to-income home loans from February to curb housing risks

AUSTRALIA’S regulator on Thursday said it will impose a cap on high debt-to-income (DTI) mortgage lending from February, aiming to address housing-related vulnerabilities amid rising credit growth and property prices.

The Australian Prudential Regulation Authority said authorised institutions can issue up to 20 per cent of new home loans at six times borrowers’ income or higher. The cap will apply separately to owner-occupier and investor lending.

While overall lending standards remain sound, APRA noted a recent uptick in riskier loans as interest rates fell and housing credit growth climbed above its long-term average.

Investor loans, which typically carry higher DTI ratios, have driven the increase.

“At this point, the signs of a build-up in risks are chiefly concentrated in high-DTI lending, especially to investors,” APRA Chair John Lonsdale said.

“By activating a DTI limit now, APRA aims to pre-emptively contain risks and strengthen banking and household sector resilience.”

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The regulator said the limit is not currently binding and will have little near-term impact on credit availability, though it could constrain investor borrowing if high-DTI lending approaches the threshold. Exemptions will apply for bridging loans and financing for new housing supply. REUTERS