APRA has announced a change that will affect how banks assess home loans from 1 February, especially for borrowers stretching their borrowing capacity.
If you’re planning to buy, refinance, or invest, this update is worth understanding because it can influence:
- How much you can borrow
- Which lender is the best fit
- How quickly your loan gets approved
Let’s break it down in simple terms.
What Is DTI?
DTI stands for Debt-to-Income.
It’s a simple measure that compares how much you earn to how much you owe.
Banks calculate it like this:
DTI = Total Debt ÷ Gross Annual Income
If your total debt is six times your income, that’s called DTI 6.
For example:
- Income: $160,000
- DTI 6 limit: $960,000 total debt
Anything above that moves you into the high-DTI category.
The New APRA Rule in Plain English
From 1 February, banks can still approve high-DTI loans (DTI 6 or higher), but APRA has put a limit on how many they can write.
Only 20% of a bank’s new home loans can be high-DTI loans.
Think of it like a bucket.
Every high-DTI loan goes into that bucket. Once the bucket is full, the bank must slow down or stop approving these applications until the next cycle.
This rule isn’t banning high-DTI lending.
It’s simply limiting the volume.
Why APRA Introduced This Change
Household debt in Australia is high, and interest rates have been unpredictable.
APRA wants banks to take a balanced approach:
- Allow stronger borrowers to proceed
- Avoid too many higher-risk loans
- Protect the broader financial system
The 20% cap gives banks flexibility while maintaining stability.
How Banks Manage Their 20% Bucket
Not all banks behave the same. Their appetite for high-DTI lending depends on:
- How much new lending they write
- How quickly their bucket fills
- Internal risk settings
- Market conditions
- Customer mix (owner-occupiers vs investors)
Here’s the general pattern:
Major Banks
- Write the highest volume
- Their bucket fills faster
- Tighten quickly near the 20% threshold
- May reduce borrowing capacity or decline borderline applications
Mid-Tier and Regional Banks
- Lower lending volume
- Bucket fills slower
- Often remain open to high-DTI borrowers longer
- Can become a backup option
Non-Bank Lenders
- Not bound by the 20% rule
- Can continue lending above DTI 6
- May have higher rates or different servicing rules
How This Affects You as a Borrower
If your DTI is below 6:
- Nothing changes
- You fall under normal lending criteria
If your DTI is above 6:
Your approval depends on:
- Which lender you apply with
- How full their 20% bucket is
- When in the month or quarter you apply
- Strength of your income and spending profile
When a bank’s bucket is nearly full, they might:
- Reduce how much you can borrow
- Ask for extra documentation
- Apply stricter income shading
- Decline applications that would normally pass
Meanwhile, another lender with more space left may approve you without issue.
A Simple Example
Let’s look at a real-world scenario.
Income: $160,000 per year
DTI 6 limit: $960,000 total debt
- If total debt stays below $960,000 → Not affected
- If total debt exceeds $960,000 → You enter the high-DTI bucket
If the bank still has space in its 20% allocation, it may approve the loan.
If the bucket is nearly full, the outcome may be very different.
This is why lender selection and timing now matter more than ever.
Will the New APRA 20% DTI Rule Affect Refinancers?
Yes — it can affect refinancers too.
1. The Rule Isn’t Just for New Purchases
APRA’s change applies to all new mortgage lending by banks, including:
- New home loans
- Investment loans
- Refinances
- Top-ups / equity release
If a refinancer’s DTI is 6 or above, they fall into the bank’s high-DTI bucket.
2. What This Means for Someone Refinancing
If your DTI is below 6 → No impact.
If your DTI is 6 or above:
- You can still refinance
- The bank will assess more closely
- File may take longer
- Stricter review of expenses
- Rental income shading may apply
- Need to show employment stability and buffers
In busy months, some banks may fill their allocation quickly, making approvals harder.
3. Will Most Refinancers Be Affected?
Most won’t.
Most households sit in the DTI 3–5 range.
The rule mainly affects:
- Borrowers with large loans relative to income
- Households with rising expenses
- People wanting equity release
- Investors with multiple properties
4. Should Refinancers Be Worried?
Not really — but pre-assessment is smart.
Each bank treats DTI differently.
Because of the 20% cap:
- Some banks will still accept higher DTI files
- Some will become more selective
- Others may rely more heavily on brokers
A broker can compare which lenders still have appetite for high-DTI lending.
5. Quick Example
Income: $160,000
Credit card: $4,000
Overdraft: $2,000
Current loan: $900,000
Approximate DTI ≈ 5.7
→ Below 6, no impact.
If loan was $1,050,000
DTI ≈ 6.2
→ Falls into 20% group. Still possible, but lender choice becomes critical.
In Summary
- APRA’s new rule limits high-DTI approvals
- Only 20% of a bank’s new home loans can be DTI 6 or higher
- Borrowers below DTI 6 won’t see changes
- High-DTI borrowers may face stricter assessments
- Lender selection and timing now matter more than ever
Disclaimer
This blog is for general financial education and awareness only. It’s based on recent industry news and regulatory updates and should not be taken as personal advice.
Every borrower’s situation is unique. Please conduct your own due diligence and seek appropriate financial, legal, or credit advice before making decisions.
