Australia’s banking regulator has announced new limits on how much banks can lend to people taking on very large mortgages, as concerns grow about rising household debt and the pace of the property market.
From February, banks will be restricted in how many new home loans they can write that are more than six times a borrower’s annual income. No more than 20 per cent of a bank’s new loans can fall into this category.
In practical terms, the change targets borrowers who are stretching themselves the most to buy property.
Moxin Reza from Investor Partner Group said the change is aimed at protecting the financial system rather than pushing prices lower.
“It is designed to limit the most extreme borrowing,” he said. “It does not change the rules for most buyers and it is unlikely to make homes cheaper.”
The move comes as housing affordability reaches record lows. Many households now need to spend close to half their income just to keep up with mortgage repayments on a newly purchased home.
Regulators are particularly focused on investors, who now make up about two in every five new borrowers. Investor lending rose sharply in the September quarter, adding to concerns that rising prices are being supported by higher levels of borrowing.
“When a large share of new loans goes to investors, risks tend to build more quickly,” Reza said. “If conditions change, more borrowers are exposed at the same time.”
The Australian Prudential Regulation Authority said it is prepared to introduce tighter measures if lending standards weaken further.
Treasurer Jim Chalmers said the changes were a prudent step to keep lending standards in check, while acknowledging they would not resolve affordability pressures on their own.
Most analysts expect the impact on prices to be limited. The majority of borrowers already take out loans well below the new threshold, and current data shows only a small share of new home loans exceed six times income.
“This functions more like a safety barrier than a brake,” said Domain’s chief of research and economics, Nicola Powell. “It reduces risk without significantly slowing activity.”
Bank analysts also expect little immediate impact on borrowing or prices, as the cap sits well above the borrowing levels of most households.
Property data firm Cotality said the timing reflected a return of investor activity to levels last seen during the previous housing upswing.
Affordability challenges, however, continue to be driven by deeper factors, including limited housing supply and strong population growth.
Greens senator Barbara Pocock said the changes did not go far enough and argued that investor demand continues to place pressure on first home buyers.
Reza said further action remains possible, but lending rules have limits.
“If prices continue to rise, it is more likely to reflect supply shortages than these lending settings,” he said.
For most buyers, the rules may be tightening at the edges while the housing market itself remains largely unchanged.