Australian Regulator Clamps Down on Risky Mortgage Lending
Australia's financial watchdog has launched a significant intervention in the overheating property market, imposing strict new limits on high-risk mortgage lending. The Australian Prudential Regulation Authority (Apra) announced that banks must now restrict new loans with debt-to-income ratios exceeding six times borrowers' earnings to no more than 20% of their total mortgage lending.
The Growing Pressure on Household Finances
The regulatory crackdown comes as property prices experience breakneck growth alongside rapidly expanding credit. Recent analysis reveals the alarming reality that typical households now need nearly half their pre-tax income simply to service an average new mortgage. This financial strain has raised serious concerns about household resilience and housing affordability across the nation.
Particular attention has focused on the explosion in lending to property investors, who currently account for two in every five new loans. The September quarter alone witnessed an 18% surge in the value of investor lending, marking a return to levels not seen since 2014 when investors dominated the market.
Regulatory Response and Political Reactions
Apra chair John Lonsdale confirmed the new lending restrictions will take effect in February, signalling the regulator's readiness to implement additional measures if necessary. "We will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards," Lonsdale stated.
Treasurer Jim Chalmers welcomed the move, describing it as "prudent steps to maintain responsible lending" that would support both financial resilience and housing affordability. However, Greens senator Barbara Pocock criticised the measures as insufficient, arguing that "first-home buyers are being priced out by investors at weekend auctions" and urging stronger action to address the housing affordability crisis.
This represents the first major intervention in mortgage lending standards since Apra's previous crackdown a decade ago, which ultimately contributed to cooling home prices. The current data shows that approximately one in ten investor loans and one in twenty-five owner-occupier mortgages currently exceed the six-times-income threshold that will now face restrictions.
