APRA’s new crackdown to hit ‘overstretched’ property investors

Tough new debt limits will make it harder for highly geared Aussies to keep growing their property portfolios – especially those already near the edge.

There’s a new rule on the block, and this time it’s aimed squarely at how much debt Australians can take on. On top of the long-standing 3 per cent serviceability buffer, APRA is bringing in a hard cap on how many loans can sit at six times a borrower’s income or higher.

On paper, it sounds technical. In practice, it goes straight to the heart of how far investors can stretch their borrowing over the next decade.

If you’ve been following the headlines, it’s no surprise a lot of property investors are on edge. There’s talk of crackdowns on “high risk” loans, permanent changes to the system and another squeeze on anyone with more than one mortgage. At the same time, many people are quietly wondering a simpler thing:

Does this actually change what I can do, or is it more noise than substance?

In this article, we’ll strip away the jargon and the fear. We’ll walk through:

• What APRA has changed, in plain English

• Who is most likely to feel it

• How it could shape your borrowing power if you’re trying to buy, hold or grow a portfolio

The aim is not to talk you into or out of investing. It’s to help you understand the rules so you can make calm, informed decisions instead of reacting to headlines.

Along the way, we’ll also look at how investors can lean on good advice and data-led tools to stay on the front foot. When you can see your numbers clearly, a rule change stops feeling like a threat and starts to look more like a prompt to review your plan. Later on, we’ll use AbodeFinder as one example of how to stress test your strategy and keep building wealth without taking on more risk than you’re comfortable with.

This is general information and education only, not personal financial advice. Always run your own numbers with a qualified adviser who understands your situation.

What APRA has actually changed – in plain English

Quick recap: the 3 per cent serviceability buffer

Before we get to the new rule, it helps to remember the existing one.

For years, lenders have been required to test your repayments at an interest rate at least 3 percentage points higher than what you actually pay. If your current rate is 6 per cent, the bank has to make sure you could still afford the loan at 9 per cent.

That “pretend higher rate” is the serviceability buffer. It’s there to cover all the unknowns:

• Future rate rises

• Time off work

• A slower patch in your business

• Rental vacancies or other surprises that squeeze cash flow

Without a buffer, borrowers would be tested only at today’s rate. That’s when things fall apart quickly if conditions change. The 3 per cent buffer is designed to avoid the “too much debt, not enough income” outcome we’ve seen in other countries.

At this point, that buffer is baked into the system. It’s not a short-term tweak, and it’s unlikely to disappear any time soon.

The new rule: 6x DTI with a 20 per cent cap

On top of the buffer, APRA is now adding a second test: a limit based on your total debt compared to your income.

Debt to income (DTI) is simple. You take all your loans, divide them by your gross annual income, and that number is your DTI.

• Earn $150,000 a year and hold $600,000 in total debt → DTI of 4

• Earn $150,000 and hold $900,000 in total debt → DTI of 6

The new rule says that from February 2026, banks supervised by APRA can only let a slice of their new lending sit at a DTI of 6 or higher. That slice is capped at 20 per cent of the new loans they write.

Two key details:

• The 20 per cent cap is tracked separately for owner occupiers and investors

• It applies to new loans, not your existing mortgage balance

This rule doesn’t replace the 3 per cent buffer – it sits on top of it. That means any new loan has to pass both tests:

1. It must be affordable at a higher “buffered” interest rate

2. It cannot sit in a pool of high DTI lending that’s bigger than APRA will allow for that lender

Why this is a long game, not a sudden brake

With all the noise around the announcement, it’s easy to imagine half the country being declined overnight. That’s not what’s happening.

Right now, only a minority of loans sit above the 6x DTI line. Roughly:

• Around 10 per cent of new investor loans are at or above a DTI of 6

• Around 4 per cent of new owner-occupier loans are in that range

Both are well under the 20 per cent cap. That’s why many lenders won’t need to make big policy changes straight away – they already sit comfortably inside the new boundary.

So why move now? APRA is looking ahead.

When interest rates eventually fall, or lenders relax other parts of their assessment rules, borrowing capacity tends to jump. More people push to the max. The share of high DTI loans can rise quickly.

By putting a cap in place now, APRA is trying to set the guard rails before the next strong upswing in credit, rather than slamming on the brakes later when the system is already running hot.

For investors, this is less of a sudden stop and more of a signal about the rules that will shape borrowing over the next cycle.

Why regulators worry about high DTI investors

What can go wrong when leverage runs hot

On paper, a high DTI can look efficient. You’re “using your balance sheet”, leveraging harder so more assets are working for you. When everything lines up – stable job, low rates, tight rental markets – it can feel clever, not risky.

The trouble is when too many borrowers sit close to the edge at once.

If your DTI is already high, there isn’t much room for:

• A rise in interest rates

• A period of reduced income

• A few months of rental vacancy or lower rents

• Higher holding costs (insurance, maintenance, land tax and so on)

With a lot of leverage, even small changes can squeeze cash flow hard. One property running at a loss is manageable for many households. A whole portfolio sliding further into the red, with no buffer, is where stress shows up quickly.

From a system point of view, regulators worry about what happens if a large group of borrowers hits that wall at the same time. When highly geared owners can’t absorb the shock, more are forced to sell. If that happens in a softer economy, you can get a feedback loop:

• More listings

• Weaker prices

• More negative equity

• Even more forced sales

We had an early warning in 2021, when cheap money and hot markets saw a much bigger share of new loans written above six times income. It didn’t end in a full-blown crisis, but it was a clear yellow flag. APRA’s new DTI cap is partly a response to that period – a way of saying, “we don’t want to see that level of stretch again”.

How Australia compares to other countries

Australia is not the first country to put limits around how much people can borrow relative to their income. In fact, until now, we’ve been on the looser side.

• Canada, Ireland and the UK have run permanent DTI-style caps for some time, often at lower multiples than Australia’s 6x trigger

• In those markets, most borrowers simply can’t reach the same level of leverage that has been common here

• As a result, household debt loads tend to be lower

New Zealand has also used similar tools, especially around investor lending, to rein in very high DTIs and high loan-to-value ratios when its market ran too hot.

Seen through that lens, APRA’s move isn’t some wild experiment. It’s Australia edging closer to the kind of guard rails other developed markets already use. The difference is that our bar has been set higher, leaving more room for investors to gear up – just not without limit.

For investors, that framing matters. This is less “war on property” and more “bringing our rules into line with global norms”. It still changes the game at the margins – especially for highly geared strategies – but it doesn’t shut the door on using sensible leverage as part of a long-term plan.

What this could mean for your borrowing power

Short-term reality – what changes now

The first thing to know: nothing dramatic happens overnight.

Most major banks are currently writing well under the new 20 per cent cap for loans at six times income or above. They don’t need to slam the door on investors tomorrow, and you’re unlikely to see a sudden wave of blanket declines just because the rule has been announced.

In the short term, the people most likely to notice a change are:

• Investors who consistently push every lender to the highest possible DTI, deal after deal

• Borrowers who rely heavily on a small group of more aggressive lenders that already have a high share of 6x+ DTI lending

Those lenders may quietly tighten up earlier than others. That might show up as:

• Slightly lower borrowing capacities

• Stricter treatment of certain income types

• More pushback on very stretched applications

For most borrowers using mainstream banks in a fairly standard way, the early impact is more about awareness than hard limits.

Who is most exposed as the cap starts to bite

The bigger shifts are likely to show up over time, especially if credit growth picks up and more borrowers crowd towards the top end of the DTI range.

Profiles that may feel the squeeze first include:

• Younger investors whose strategy relies heavily on strong future income growth to make today’s high leverage feel comfortable

• High-income professionals aiming for six, eight or ten properties, often with tight cash flow and a heavy reliance on capital growth

• Investors in thin-yield markets, where annual negative cash flow is already large compared to their income

Banks don’t have to wait until they hit the 20 per cent cap before responding. To keep their high DTI share in check, they can:

• Tighten how they treat variable income (bonuses, overtime, commissions, some rental income)

• Limit the number of high DTI loans they’re prepared to write for a single household

• Apply more conservative shading to existing debts, credit cards and investment expenses

None of this stops you from growing a portfolio. But it does make the old “just keep refinancing up and hope the bank says yes” approach harder to sustain at very high leverage.

The quiet risk: non-bank lenders

APRA’s cap applies to lenders it supervises – the big banks and many smaller authorised deposit-taking institutions. It does not directly cover all non-bank lenders.

Non-banks don’t take deposits from everyday customers but still offer home and investment loans. They often position themselves as more flexible on income types, policy quirks and complex deals. That flexibility can be useful in the right context.

The quiet risk is what happens if worried investors stampede towards any lender outside APRA’s net, just to squeeze out one more highly geared deal.

That can backfire:

• Interest rates may be higher, so you pay more for the extra leverage

• Policies can change quickly if funding costs rise or arrears increase

• In tougher times, refinance options can dry up if mainstream banks are conservative and non-banks pull back at the same time

Using a non-bank as one part of a planned strategy is very different to using them as a last resort after every other lender has said no. Under the new rules, the investors who come out ahead will be the ones who treat lender choice as part of a portfolio plan, not a last-minute scramble for the biggest number on a calculator.

How smart investors can adapt, instead of freezing

Start with your own buffers, not APRA’s

APRA’s rules are the floor, not the target. Smart investors set their own guard rails above whatever a regulator or bank will accept.

Some practical buffer rules you can put in place:

1. Minimum cash buffer per property

Decide how much cash you want sitting in offset or savings for each property – for example, three to six months of interest and basic holding costs. The exact number is up to you; the key is committing to it and actually sticking to it.

2. Stress test interest rates above the 3 per cent buffer

If the bank tests your loan at 9 per cent, you might run your own numbers at 9.5 or 10 per cent and see how the portfolio holds up. If the deal only works on a razor-thin rate assumption, that’s a warning sign.

3. Set a portfolio-level DTI limit

Don’t just look at one loan at a time. Add up your total debt and income and decide what feels like a sensible ceiling for your household. For some, that might be a DTI of 5. For others with very stable incomes, it might be 6. Once you pick that line, build your plan around it.

These self-imposed rules give you more control. They stop you drifting towards the edge just because a lender’s system says you can.

Tighten your numbers – income, expenses and structure

You don’t need tricks to improve your position. Boring, sensible moves can give you both more borrowing power and a safer portfolio.

A few examples:

• Clean up consumer debt

  Credit cards, personal loans, buy now pay later and car finance all chew up serviceability. Reducing limits or clearing balances can move the needle more than most people expect.

• Fix messy structures and ownership splits

  A patchwork of joint names, trusts and companies that doesn’t match your real strategy can leave debt and income in the wrong places. A good accountant can help you tidy this up so future lending is smoother.

• Capture all income correctly

  Rental income, tax credits, overtime, bonuses, distributions and side-business income can all help, but each lender treats them differently. A lot of capacity is lost simply because paperwork is incomplete or presented poorly.

This is where a specialist mortgage broker and adviser team who work with investors every day really earn their keep. They know:

• Which lenders accept which income types

• How to present your file cleanly

• When a restructure is worth the effort

Choose lenders with a proper plan, not a lucky dip

Under a DTI cap, the order in which you use lenders matters more.

Two investors with the same income and portfolio can end up in very different positions depending on how they sequence their lending.

A few planning ideas:

• Use the big banks early, while your DTI is moderate

  Major banks usually offer sharper pricing and stronger product ranges. If you use them while your DTI is still in the low-to-mid range, you can lock in solid funding before you become a more marginal file.

• Save niche lenders for when you genuinely need flexibility

  Smaller or more flexible lenders can be useful later, when you need policy exceptions or different ways of treating your income. If you burn through them too early, you may have nowhere useful to go later.

• Rely on scenario modelling, not the biggest one-off borrowing figure

  Instead of chasing whichever bank spits out the highest amount today, run a few scenarios. Ask how this choice affects your ability to buy property two, three and four. Think in terms of rate, policy and long-term flexibility – not just this one purchase.

A bit of planning helps you stay in control of your borrowing path, rather than waking up in a few years to find a combination of high DTI and tighter rules has boxed you in.

Rethinking your property strategy under tighter rules

Yield, cash flow and growth when borrowing is capped

When borrowing was easier, many investors followed a simple playbook: chase the strongest growth markets, accept thin yields and wear the negative cash flow. Rising prices did most of the heavy lifting, so short-term pain felt worth it.

Under a hard DTI cap and a firm serviceability buffer, that approach is harder to repeat again and again.

If your borrowing is capped, every loan has to work harder. That means:

• Not every deal can be low yield, high growth and deeply negative cash flow

• Cash flow can’t be something you “fix later”

• Each property has to pull its weight in the portfolio, not just look good in a brochure

For many investors, the shift will look like:

• Mixing growth markets with locations that offer stronger rental yields

• Looking for add-value opportunities (renovations, secondary dwellings, small developments) so you’re not relying only on market growth

• Paying closer attention to holding costs, vacancy risk and your overall cash position

In a world where you can’t just keep stacking on more and more debt, the investors who win are the ones who know their numbers suburb by suburb, not just city by city. They have a clear view of:

• What rent realistically looks like today

• How expenses and interest stack up over the next few years

• Whether the growth they’re expecting is backed by solid demand and incomes in that area

Capped borrowing limits are unforgiving for vague strategies.

Why data-driven suburb and property selection matters more

This is where data stops being a “nice to have” and becomes a real edge.

Good suburb and property-level data can help you:

• Spot better balance

  Find areas where local incomes, prices and rents are better aligned, so you’re not taking on huge debt in already-stretched markets.

• Pressure test rent and cash flow assumptions

  Check real rental ranges, vacancy trends and days on market so your spreadsheet reflects reality, not just agent optimism.

• Avoid hype traps

  Steer clear of pockets where debt is already extreme, yields are razor thin and a crackdown on high DTI lending is more likely to hurt.

A service like AbodeFinder can plug into this thinking without turning your strategy into an ad exercise. Used well, tools like this can help you:

• Test borrowing scenarios against realistic suburb-level price and rent data

• Shortlist locations that fit both your budget and your risk settings

• Sense check whether the next property you’re eyeing off improves your overall position, or just adds more strain to your cash flow

When the rules tighten, you don’t have to stop investing. But you do need cleaner numbers, better suburb choices and a strategy that works inside the new lines, rather than pretending they aren’t there.

Action plan – turn APRA’s rule change into a property check-up

Quick self-check for current and aspiring investors

Use APRA’s move as a nudge to pause and take stock. A quick self-audit might start with questions like:

• What is your current DTI across all lending, not just with one bank?

• How would your portfolio cope with a few more years of higher rates and flat or slower rent growth?

• Are you following a clear lender sequence, or just saying yes to whoever approves you next?

• Do you know which future purchase in your plan is most likely to be blocked by the new cap?

• If your borrowing stopped today, would your current portfolio still line up with your long-term goals?

Even rough answers can show you where you’re solid and where you’re flying blind.

Conversations to have with your team now

Once you’ve sized up where you stand, it’s worth looping in your key advisers.

With your broker

Ask for a full portfolio-level DTI and buffer review, not just “how much can I borrow?”. Run a few scenarios:

• No rate cuts for the next few years

• Modest rate cuts but tighter lending rules

• A temporary loss of income or a reduced bonus

Talk through which lenders make sense in which order if you want to keep options open for future purchases.

With your accountant and adviser

• Check whether your current structure (personal names, company, trust, or mix) still suits your goals in a capped-borrowing world

• Review how extra debt would affect your tax position, cash flow and safety margin

• Sense check whether you’re relying too heavily on capital growth to bail out weak cash flow

The aim is to move from a bank-by-bank, deal-by-deal mindset to a joined-up plan where your broker, accountant and adviser are working off the same playbook.

Turning this into a practical plan

From here, the next step is to turn all this thinking into a simple, realistic plan. You might:

• Map out a rough 5–10 year property path using more conservative borrowing and growth assumptions than you’d have used a few years ago

• Decide how many properties you actually need, and what mix of yield and growth makes sense for your household

Data-led tools can make that process much easier. With something like AbodeFinder, you can:

• Stress test what you can afford in different suburbs based on your actual numbers

• Compare yield and growth profiles across short-listed areas

• Sense check whether the next purchase moves you closer to – or further away from – your long-term goals

Regulation will keep changing. Markets will cycle. Rules will tighten and relax again over time. The investors who come through that in good shape are rarely the ones with the most aggressive leverage. They’re the ones who understand the rules, know their numbers and keep adjusting the plan instead of freezing every time a new headline drops.