With Australia’s housing market continuing to evolve, understanding Debt-to-Income (DTI) ratios is becoming increasingly important for borrowers and property professionals. As APRA prepares to introduce Australia’s first formal DTI lending cap in February 2026, it is essential for anyone in – and entering – the market understand what this change means and how it differs from current bank practices.
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What is DTI?
A Debt-to-Income ratio is a measure used by lenders to compare your total debt to your gross annual income. It helps determine borrowing risk and influences how much a lender is willing to approve.
Formula:
DTI = Total Debt/Groos Annual Income
Example:
If you earn $100,000 per annum and have $500,000 in total debt, your DTI = 5.0.
Current Practice (Before February 2026):
While banks in Australia do not currently have a formal APRA-imposed DTI cap, they rely on internal benchmarks and APRA guidance.
DTI Threshold
- Most major banks consider a DTI below 6 as acceptable.
- A DTI above 6 is viewed as higher risk and often triggers additional scrutiny or rejection, especially for APRA-regulated lenders.
Regulatory Oversight
- APRA monitors high-DTI lending but has not enforced a hard cap yet (the cap begins Feb 2026).
- As of early 2025, about 5.3% of new loans had a DTI ≥ 6 — flagged as a risk but still allowed under current settings.
Non-bank lenders
- May allow higher DTIs, but typically with tighter conditions such as:
- Higher interest rates
- Extra documentation
- Stricter assessment criteria
Informal Rule:
Banks commonly treat 6x income as an internal ceiling, despite APRA not formally mandating it.
New Change (Effective 1st of February 2026):
APRA will introduce a binding quantitative limit on high-DTI lending:
Banks and other ADIs can issue no more than 20% of new home loans to borrowers with a DTI ≥ 6
(i.e., total debt at least 6x annual income).
Scope:
- Applies separately to:
- Owner-occupier loans
- Investor loans
- Exemptions include:
- Bridging loans for owner-occupiers
- Loans for new dwelling construction or purchase
Purpose:
To reduce high-risk borrowing and strengthen financial system stability amid rising household debt.
Important note:
High-DTI loans are not banned, but they are capped at 20% of new lending per institution.
This is the first time APRA has implemented a DTI-based lending limit in Australia, similar to policies already used in the UK and New Zealand.
Side-by-Side: Current vs New APRA Rules:
| Aspect | Current (Before Feb 2026) | New (From Feb 2026) |
| DTI Limit | No formal cap; banks manage internally | Formal cap: max 20% of new loans with DTI ≥ 6 |
| Applies To | General lending guidance only | Owner-occupier and investor loans separately |
| Exemptions | N/A | Bridging loans & new dwelling purchases |
| Other Controls | Serviceability buffer (3%) | Serviceability buffer remains + DTI cap |
| Regulatory Nature | Guidance-based | Binding quantitative limit |
Impact:
- Previously, banks could issue as many high-DTI loans as they wanted (subject to internal risk appetite).
- Now, lenders must actively monitor and limit high-DTI loans to stay under the 20% threshold, which will likely result in tighter credit for highly leveraged borrowers.
