APRA's New Cap on High DTI Home Loans Explained

High DTI loans, where borrowers' debt exceeds six times their income, have been identified as a potential risk to the financial system. By capping these loans, APRA aims to ensure that lending practices remain prudent and that borrowers are not overextending themselves financially.

Moody's analysts have noted that this policy is unlikely to significantly impact home loan growth in the near term, as most banks currently underwrite well below the 20% limit. However, the cap serves as a proactive measure to curb future risks associated with high household debt levels.

For borrowers, this change may result in stricter lending criteria, particularly for those seeking high DTI loans. Lenders will need to adjust their portfolios to comply with the new cap, potentially leading to more conservative lending practices.

Overall, APRA's decision reflects a cautious approach to maintaining financial stability in the housing market, balancing the need for accessible home loans with the imperative to prevent excessive risk-taking.