The Australian Prudential Regulation Authority (APRA) has announced the introduction of Australia's first debt-to-income (DTI) lending limits, responding to a rise in riskier mortgage activity.
From 1 February, banks will be prohibited from lending more than 20% of new mortgages to borrowers with a debt-to-income ratio of above six.
APRA's DTI limit will apply separately to owner-occupier and investor lending.
This means investors would get the shorter end of the stick as they tend to borrow at a higher debt-to-income level than owner occupiers.
"Should levels of high DTI lending rise towards the 20% limit over the coming period, this limit will act as a guardrail and is expected to have a greater impact on investors, who typically borrow at higher DTI ratios than owner-occupiers," APRA said.
The announcement follows APRA's warning last week that it had started to see an increase in riskier lending, "albeit from a low base", driven largely by high-DTI loans to investors.
The Reserve Bank of Australia has also flagged rapid investor credit growth, now rising at its fastest pace since 2015.
Investor lending by the numbers
APRA's latest data, released a month ago, showed investor home loans were up 6.7% over 12 months to $767 billion.
In Australia, owner-occupied home loans still account for the majority of new home loans funded in the month, per ABS' latest lending data (59% OO vs 41% Inv).
However, investor home loans continue to drive the growth in mortgage lending in Australia, surging 17.6% to $39.8 billion in the three months to September.
Property investors are also borrowing more, with the average loan size rising by $11,686 to $685,634.
By contrast, owner-occupier loans increased a modest 2% on a quarterly basis, while first home buyers were up just 2.3%.
What investors should expect now
A sharp surge in investor lending in 2014 previously led APRA to impose a 10% annual investor loan growth cap.
Current ABS data shows investor lending growth is again approaching double that threshold.
APRA Chair John Lonsdale said the regulator "will consider" further investor-specific measures if macro-financial risks continue to build.
However, APRA does not expect the new DTI cap to have "a near-term impact on borrowers' access to credit".
Prudential data released in September shows mortgages with DTI ratios between four and six have hit a six-year high, reaching more than $67 billion, nearly half of all new loans.
Images courtesy of APRA and Freepik
