New Home Loan Limits come into effect Feb 1st 2026

APRA Moves to Rein In High-Risk Lending - What It Means for Aussie Borrowers!

Australia’s housing market just keeps powering on, and now the banking regulator is stepping in with a major change aimed at keeping things safe, steady, and sustainable! From 1 February, APRA will roll out new limits on how much banks can lend to borrowers with very high debt levels — and it could shape the way home loans are approved in 2026 and beyond.

What’s Changing?

APRA is putting a cap on the number of high debt-to-income (DTI) loans that banks can issue. These are loans where a borrower’s total debt is more than six times their annual household income - the type of lending that can leave households stretched too thin if interest rates rise.

Under the new rules:

• Banks can issue no more than 20% of new loans with a DTI ratio above six.

• The cap applies separately to owner-occupiers and investors.

• The goal is to prevent investors from pushing everyday buyers out of the market.

To give a quick example: A household earning $100,000 a year taking on more than $600,000 in total debt would fall into this “high DTI” category.

Why Is APRA Doing This?

Housing is booming again, and with values rising quickly, APRA says it's acting early to avoid a build-up of risky lending. Other countries such as Ireland, the UK, Norway, New Zealand, and Canada already have loan-to-income caps in place - and APRA has been watching those markets closely.

It’s worth noting: Australia has never capped high DTI lending before. This is a first!

APRA’s Chair, John Lonsdale, says the regulator wants to keep the system stable without shutting the door on everyday buyers. And while the cap applies across the board, APRA expects it will have more bite for investors, who tend to borrow more aggressively.

What’s Not Included?

The regulator is keeping some vital lending categories out of the cap to avoid slowing down construction and development. Excluded loans include:

• Bridging loans

• Loans for the construction of new homes

This is good news for builders, first home buyers building new homes, and governments trying to boost housing supply.

A Look Back - And What We Can Learn

APRA has used other levers in the past to cool investor activity, such as the cap on interest-only loans in 2017. During that period, Australia saw its sharpest correction in recent years, with home values dropping 8.2% nationally between late 2017 and early 2019.

This new policy isn’t designed to force prices down — but it is designed to keep a lid on runaway borrowing before it becomes a bigger problem.

Industry Response

The Australian Banking Association has backed the move, calling it targeted and sensible. They’ve also supported the exemption for new dwelling loans, saying it helps maintain access to safe lending while still supporting much-needed housing supply.

What Could This Mean for You?

If you're planning to buy or invest in 2026:

• Borrowers with lower DTI ratios will find the process similar to today.

• Buyers aiming to stretch their borrowing power may find banks tightening the reins.

• Investors might feel the pinch more than owner-occupiers.

Overall, it’s a sign that regulators want steady, sustainable growth — not a return to risky lending that could shake the broader economy.