By Scott Murdoch and Roshan Thomas
(Reuters) -Australia's banking 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 (APRA) said authorised institutions can only issue up to 20% of new home loans at six times borrowers' income or higher. The cap will apply separately to owner-occupier and investor lending.
About 10% of new investor loans and 4% of owner-occupied loans sit at or above the six times debt to income level at the moment, according to APRA figures. The intervention is the first time APRA has implemented such lending restrictions since 2017 when it put caps on interest-only lending.
"Australia has a strong and safe financial system but these are prudent steps to maintain responsible lending," Treasurer Jim Chalmers said.
"These rule changes are an important way for the regulator to reduce risk in our economy, but these efforts will also help when it comes to getting people into homes."
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."
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.
(Reporting by Scott Murdoch in Sydney and Roshan Thomas in Bengaluru; Editing by Vijay Kishore and David Gregorio)
