Australian Prudential Regulation Authority activates a debt-to-income limit capping high DTI mortgages at 20 percent of new lending from 1 February

The Australian Prudential Regulation Authority (APRA) announced it will activate a macroprudential debt-to-income (DTI) lending limit to contain housing-related vulnerabilities as interest rates fall, housing credit growth rises above its longer-term average and home prices increase further. The measure targets an observed pick-up in high DTI lending, particularly among investors, against a backdrop of already high household indebtedness. From 1 February next year, authorised deposit-taking institutions (ADIs) may originate up to 20 per cent of new mortgage lending at a DTI of six times income or more, with the cap applied separately to owner-occupier and investor portfolios. The limit excludes owner-occupier bridging loans and loans for the purchase or construction of new dwellings, and includes proportionate treatment for smaller ADIs. APRA does not expect the limit to be binding at an aggregate level initially, but it is designed to act as a guardrail if high DTI lending rises, with a larger expected effect on investors. APRA will keep its other macroprudential settings unchanged, with the mortgage serviceability buffer at three per cent and the counter-cyclical capital buffer at one per cent of risk-weighted assets, and indicated it will consider additional measures, including investor-specific limits, if macro-financial risks rise significantly or lending standards deteriorate.