Unlocking Your Property Investment Potential

There is a new rule on the block, and this time it is 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 that limits 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 have been watching the headlines, it is no surprise that a lot of property investors feel on edge. There is 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, plenty of people are quietly asking a very simple question: does this actually change what I can do, or is it more noise than substance?

This article strips away the jargon and the scare factor. We will walk through what APRA has changed in plain English, who is most likely to feel it, and how it might shape your borrowing power if you are trying to buy, hold or grow a portfolio. The goal is not to talk you into or out of investing, but to help you understand the rules so you can make calm decisions instead of reacting to headlines.

Along the way, we will look at how investors can use solid 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 in the article, we will use AbodeFinder as one example of how to stress test your strategy and keep building wealth without pushing your risk too far.

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 old 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. So 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 is there to deal with all the unknowns: rate rises, time off work, a slower patch in your business, or other life surprises that can squeeze your cash flow.

The idea is simple. If borrowers are only ever tested at today’s rate, things fall apart fast when conditions change. The 3 per cent buffer is meant to stop a repeat of the “too much debt, not enough income” story that has played out in other countries.

At this point, the buffer is not a short term tweak. It has become a core feature of how Australian home loans are assessed and it is unlikely to disappear any time soon.

The new rule – 6x DTI and 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 exactly what it sounds like. You take all your loans, divide them by your gross annual income and that number is your DTI.

• If you earn $150,000 a year and have $600,000 in total debt, your DTI is 4.

• If you earn $150,000 and have $900,000 in debt, your DTI is 6.

The new rule says that from February 2026, banks that sit under APRA’s supervision 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 extra points matter here:

• 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 does not replace the 3 per cent buffer. It sits on top of it. So a loan has to pass both tests: it has to be affordable at a higher interest rate and it cannot sit in a pool of high DTI lending that is larger than APRA will allow.

Why it is more of a long game than a sudden brake

With all the noise around the announcement, it is easy to assume that half the country is about to be declined overnight. That is not the case.

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

• 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 sit in that range.

Both are well under the 20 per cent cap. That is why many lenders will not need to change their policies straight away. They already operate comfortably inside the new boundary.

So why is APRA doing this? They are thinking ahead.

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

By putting the 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, that means 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 are “using your balance sheet”, pushing your borrowing to get more assets working for you. When everything lines up – steady job, low rates, tight rental markets – it can feel clever rather than risky.

The trouble starts when too many borrowers are perched at the edge at the same time.

If your DTI is already high, there is not much room for:

• A jump in interest rates

• A period of reduced income

• A few months of rental vacancy or lower rents

• Higher holding costs like insurance, maintenance and land tax

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 tipping further into the red, with no buffer, is where stress shows up fast.

At a system level, regulators worry about what happens if a large group of borrowers hit that wall at once. When highly geared owners cannot absorb the shock, more of them may be forced to sell. If that coincides with a softer economy, you can get a feedback loop: more listings, weaker prices, more negative equity and even more forced sales.

We had a preview of the risk back in 2021, when cheap money and hot markets saw a much bigger share of new loans written above six times income. That did not end in a full blown crisis, but it was a clear warning flag. APRA’s new DTI cap is partly a response to that period – a way of saying “we do not 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, we have been one of the looser jurisdictions.

Places like Canada, Ireland and the UK have run permanent DTI style caps for some time, often at lower multiples than Australia’s 6x trigger point. In those markets, most borrowers simply cannot reach the same level of leverage that has been common here, and household debt loads tend to be lower as a result.

New Zealand has also used similar tools, particularly around investor lending, to rein in very high DTIs and loan to value ratios when their market has run too hot.

Seen through that lens, APRA’s move is not some wild new experiment. It is Australia edging closer to the kind of guard rails that other developed markets already use. The difference is that APRA has set the bar higher, which still leaves 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 does not 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 is that 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 do not need to slam the door on investors tomorrow morning, and you are unlikely to see a sudden wave of across the board declines just because the rule has been announced.

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

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

• Clients who rely heavily on a small group of more aggressive lenders that already have a high share of 6x plus DTI loans on their books

Those lenders may quietly tighten up earlier than others. That might show up as slightly lower borrowing capacities, stricter treatment of certain income types or a bit 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 changes 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.

The profiles that may feel the squeeze first include:

• Younger investors whose plan 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 running tight cash flow and banking on capital growth to do the heavy lifting

• Investors focused on markets where yields are already thin and the annual negative cash flow is large compared to their income

Banks do not have to wait until they hit the 20 per cent cap to respond. To keep their high DTI share in check, they can:

• Tighten how they treat variable income such as bonuses, overtime, commissions and some forms of rental income

• Limit the number of high DTI loans they are prepared to write for a single borrower or 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 mean the old “just keep refinancing up and hope the bank says yes” approach will get harder to sustain at the very high end.

The quiet risk – non bank lenders

APRA’s cap applies to lenders it supervises, which covers the big banks and many of the smaller authorised deposit taking institutions. It does not directly cover every non bank lender.

Non bank lenders are the outfits that do not take deposits from everyday customers but still offer home loans and investment loans. They often position themselves as more flexible on income types, policy quirks and complex deals. That flexibility can be helpful in the right situation.

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

That can backfire in a few ways:

• Pricing can be higher, so you pay more interest for the privilege of extra leverage

• Policies can change quickly if funding costs rise or arrears pick up

• In tougher times, you may have fewer refinance options if mainstream banks are more conservative and non banks pull back at the same time

Using a non bank as one part of a carefully planned strategy is very different to using them as a last resort once 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 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 that sit above whatever the regulator or a bank will accept.

Some simple buffer rules you can put in place:

• 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 per property. The exact number is your call, the key is to set it and actually stick to it.

• 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 is a warning sign.

• Set a portfolio level DTI limit

  Do not 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 situation. For some households that might be a DTI of 5, for others with very stable incomes it might be 6. Once you pick that line, plan around it.

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

Tighten your numbers – income, expenses and structure

You do not have to play games to improve your position. Small, boring moves can give you more borrowing power and a safer portfolio.

A few practical steps:

• 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

  If you have a patchwork of joint names, trusts and companies that do not match your actual strategy, you can end up with debt and income in all the wrong places. Getting the structure right, with help from a good accountant, can make future lending smoother.

• Make sure all income is captured correctly

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

This is where specialist brokers and advisers who work with investors every day earn their keep. They know which lenders accept which income types, how to present your file cleanly and when a restructure is worth the effort.

Choosing 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 spots depending on how they sequence their lending. A few planning ideas:

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

  Major banks usually have sharper pricing and better product ranges. If you use them while your overall DTI is still 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 the flexibility

  Smaller or more flexible lenders can be useful once you are further along and need policy exceptions or different ways of looking at your income. If you burn through them too early, you may have nowhere to go later.

• Rely on scenario modelling, not the biggest number on a calculator

  Instead of chasing whichever bank spits out the highest one off borrowing figure today, run a few scenarios. Ask how this lender choice affects your ability to buy property two, three and four. Look at rate, policy and how it fits your longer term plan, not just this one deal.

A bit of planning up front helps you stay in control of your borrowing path, rather than waking up in a few years and finding that the 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, a lot of investors built portfolios around a simple idea: buy in the strongest growth markets, accept thin yields and wear the negative cash flow. Rising prices did most of the work, and the pain in the short term felt worth it.

Under tighter DTI rules and a firmer serviceability buffer, that approach gets harder to repeat over and over.

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 cannot be an afterthought you fix “later”

• Each new property has to pull its weight in the portfolio, not just on a glossy brochure

For many investors, the shift will look like:

• Mixing growth markets with locations that offer stronger rental yields

• Looking for add value opportunities – renovation, secondary dwellings, small developments – so you are not relying only on the market to do the heavy lifting

• Paying closer attention to holding costs, vacancy risk and how each purchase affects your overall cash position

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

• What the rent realistically is today

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

• Whether the growth they are expecting is backed by solid demand and income in that area

The blunt truth: 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 turns into a real edge.

Good suburb and property level data can help you:

• Spot better balance

  Find suburbs where local incomes, prices and rents are in better alignment, so you are not taking on huge debt in areas that already look stretched.

• Pressure test rent and cash flow assumptions

  Check real rental ranges, vacancy trends and typical days on market so your spreadsheet reflects how the market actually behaves, not what a selling agent hopes you believe.

• Avoid hype traps

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

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

• Test borrowing scenarios against realistic price and rent data

• Shortlist suburbs that fit both your budget and your risk limits

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

When the rules tighten, you do not have to stop investing. You do, however, need cleaner numbers, better suburb choices and a strategy that works inside the new lines rather than pretending they are not 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 reason 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 jotting rough answers to these in a notebook can highlight where you are on solid ground and where you are flying blind.

Conversations to have with your team now

Once you have a sense of where you stand, it is worth looping in the people around you.

With your broker

• Ask for a full portfolio level DTI and buffer review, not just an answer to “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 optionality for future purchases.

With your accountant and adviser

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

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

• Sense check whether you are relying too heavily on growth to bail out weak cash flow.

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

From there, the next step is to turn that 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 would 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 AbodeFinder, for example, 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 on your list 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. The investors who come through that in good shape are rarely the ones with the most aggressive leverage. They are the ones who understand the rules, know their numbers and keep adjusting the plan instead of freezing every time a new headline drops.