If you’ve applied for a home loan this year and felt like the goalposts moved, you’re not imagining it. Since February 2026, Australian banks have been operating under a new rule from APRA (the banking regulator) that limits how much of their new mortgage lending can go to borrowers with a high debt-to-income ratio. It’s the most significant change to lending rules in years, and yet most buyers we speak to across Geelong, the Bellarine, Melbourne and beyond have never heard of it.
That’s a problem, because the DTI cap quietly decides who gets the marginal “yes” this spring. Here’s what the rule actually says, who it affects most, the exemptions almost nobody is talking about, and what you can do about it, in plain English.
Your DTI is simple arithmetic: your total debt divided by your gross (before-tax) annual household income. Total debt means everything: the home loan you’re applying for, any existing mortgages, car loans, personal loans, HECS-HELP balances and credit card limits, depending on the lender’s method. As an illustration of the arithmetic only: a household earning $160,000 before tax whose total debts after the new loan would be $960,000 has a DTI of 6.0. The same household borrowing $800,000 in total sits at 5.0.
A DTI of 6 or more is what APRA classes as high. It doesn’t mean you can’t repay the loan (plenty of high-DTI borrowers never miss a payment), but the regulator’s view, set out when it announced the change on 27 November 2025, is that high-DTI lending had “started to pick up” and that acting early would stop riskier lending becoming widespread later in the cycle. Exactly how each lender counts income and debt varies (some treat HECS or credit limits differently), which is one reason the same couple can get different DTIs from different banks. Our guide to HECS debt and borrowing power covers one of the moving parts.
The rule is a portfolio limit on the banks, not a hard ceiling on you. Based on APRA’s announcement, from February 2026 each bank must keep new lending at a DTI of 6 or above to no more than 20% of its new mortgage lending, measured separately for owner-occupier and investor loans. Bigger banks are held to the framework directly, while smaller lenders reportedly receive proportionate treatment. And APRA confirmed the existing 3% serviceability buffer (where lenders assess you at your actual rate plus 3 percentage points) stays in place alongside it.
| Rule | What it says (as announced by APRA) | What it means for you |
|---|---|---|
| DTI speed limit (from Feb 2026) | Up to 20% of a bank’s new mortgage lending can be at DTI ≥ 6, applied separately to owner-occupier and investor portfolios | High-DTI loans still exist, but banks ration them. Strong applications get the scarce slots |
| Exemptions | Bridging loans for owner-occupiers, and loans to purchase or construct new dwellings, are exempt from the cap | A new build or off-the-plan purchase may face less DTI friction than an established home at the same price |
| 3% serviceability buffer (unchanged) | Lenders must assess repayments at your rate plus 3 percentage points | Still the main brake on borrowing power for most applicants. The DTI cap bites on top of it |
The table reflects APRA’s announcement and industry reporting at publication. Settings can change, so confirm the current position with APRA or your broker. The practical upshot: a bank nearing its 20% share in a given period can simply become more selective on high-DTI applications. The same borrower, same payslips, same property can be a comfortable approval at one lender and a decline at another purely because of where each bank sits against its cap. That lender-by-lender variability is precisely where a broker who knows the current appetite across a wide panel earns their place. It’s the same dynamic we describe in our guide to how much you can borrow.
Upgraders and buyers in higher-priced suburbs. DTI is about the ratio, not the postcode, but the bigger the loan relative to income, the closer you drift to 6. Families upgrading in Melbourne, Highton or Torquay while holding their first property are classic high-DTI candidates.
Investors building portfolios. Because every existing loan counts in the numerator, borrowers holding two or three properties can carry a high DTI even on strong incomes, and the investor portfolio has its own separate 20% limit. If that’s you, loan structure and lender selection now matter more than ever; our investment property loan strategies guide is a good starting point.
First home buyers stretching with small deposits. A low deposit plus a big loan is exactly the combination that produces a DTI near 6. It’s worth understanding alongside the 5% deposit scheme if you’re using it this spring.
The reported share of each bank’s new mortgage lending that can be written at a debt-to-income ratio of 6 or higher under APRA’s limit, effective from February 2026, applied separately to owner-occupier and investor lending. It’s a speed limit on the banks, not a ban on borrowers, but it makes high-DTI approvals scarcer and more selective. Confirm current settings with APRA or your broker.
Two carve-outs in APRA’s announcement deserve far more attention than they’re getting. First, loans to purchase or construct a new dwelling are exempt from the cap. For a Geelong or Armstrong Creek buyer choosing between a $750,000 established house and a house-and-land package at a similar all-in cost, that means the new build may avoid the high-DTI rationing entirely. That’s one more variable in the building-versus-buying decision, alongside everything in our construction loans guide. Second, bridging loans for owner-occupiers are exempt, which protects upgraders who briefly carry two properties (the moment their DTI naturally spikes) from being caught by a rule aimed at long-term leverage. If you’re buying before you sell, our bridging loans guide explains how that works.
Neither exemption means “free money”. The 3% buffer and normal credit assessment still apply. But they change which path to the same goal faces the least friction, and that’s exactly the kind of detail that rarely appears on a comparison website.
1. Cut credit card limits, not just balances. Depending on the lender’s method, unused limits can count toward your debts. A card you keep “for emergencies” may be quietly costing you borrowing power.
2. Clear or consolidate small debts. Car and personal loans add to the numerator; in the right circumstances, restructuring them (see our debt consolidation guide) can shift the ratio, though it’s not right for everyone.
3. Count all your income properly. Overtime, allowances, bonuses and second jobs are treated differently from lender to lender. Choosing the lender that recognises the most of your income directly lowers your DTI at that lender.
4. Consider the size of the loan, not just the maximum. Borrowing to a DTI of 5.5 rather than 6.2 doesn’t just make approval easier. It changes which banks can even take your file.
5. Get assessed before you fall in love with a property. A current pre-approval that accounts for the DTI cap tells you your real spring budget, and with Victoria’s auction reserve prices being made public from 1 October 2026, buyers who know their numbers can bid with far more confidence.
Picture a couple in Lara: two incomes, a car loan, a credit card they rarely use, and plans to upgrade to a bigger home in Curlewis while keeping their current house as a rental. On their combined gross income, the new loan plus the existing mortgage, car loan and card limit puts their DTI just above 6 at their own bank, squarely in the rationed zone. Reworked, the picture changes: the unused card limit is reduced, the small car loan is cleared before application, and the application goes to a lender whose income policy recognises one partner’s regular overtime. The same purchase now lands at a DTI in the mid-5s (outside the capped category altogether), and the choice of keeping the Lara house as a rental is assessed on its merits. The suburbs and figures differ for every household; the sequencing (measure the DTI first, tidy the debts, then pick the lender) is the repeatable part.
Ask your broker two questions before you apply anywhere: “What is my DTI, exactly, under this lender’s calculation method?” and “How is this lender currently positioned against its high-DTI limit?” The first has a precise answer that varies more than you’d expect between banks. The second changes month to month. A lender hungry for high-quality high-DTI loans early in a reporting period can be a very different proposition later. Timing and lender selection are now part of the strategy, not an afterthought, especially with rates moving in 2026 and spring stock arriving weekly.
Announced on 27 November 2025 and effective from February 2026, APRA’s measure limits the share of each bank’s new mortgage lending written at a debt-to-income ratio of 6 or higher to a reported 20%, applied separately to owner-occupier and investor lending. It’s a portfolio “speed limit” on lenders rather than a ban on individual borrowers, and it sits alongside the existing 3% serviceability buffer. Settings can change, so confirm the current position with APRA or your broker.
Divide your total debts (the proposed home loan plus existing mortgages, car and personal loans, and, depending on the lender’s method, HECS-HELP balances and credit card limits) by your gross annual household income. Total debts of $900,000 on a $150,000 gross income is a DTI of 6.0. Lenders differ in what they count on both sides of the equation, so your DTI is not one fixed number. A broker can calculate it under several lenders’ methods and tell you where you stand at each.
Often, yes. The cap doesn’t prohibit high-DTI lending. It limits how much of it each bank can write, so lenders become more selective. Strong applications with clean credit, stable income and a sensible property still get approved above a DTI of 6. It also matters which lender you approach and when, since each bank’s remaining capacity under its limit varies. And loans announced as exempt (bridging loans for owner-occupiers and loans to buy or build a new dwelling) aren’t caught by the cap at all.
No, the two operate together. The serviceability buffer, which APRA has kept at 3 percentage points, tests whether you could afford repayments if rates rose; the DTI cap limits how much high-leverage lending banks write regardless of serviceability. Some borrowers pass the buffer comfortably but still sit in the high-DTI category, and vice versa. Understanding which constraint binds for you is key to knowing your real borrowing power in 2026.
We’ll calculate your debt-to-income ratio under multiple lenders’ methods, show you which banks currently have appetite for your file, and structure your application to make the most of the rules, for buyers in Geelong, the Bellarine, Melbourne and Australia-wide. No obligation, plain English.
With years of experience in mortgage broking and finance, Melanie helps first home buyers, refinancers, investors and business owners across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria make their money work harder. Contact our team on 03 9020 2699.
