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New lending at high debt-to-income ratios remains well inside the 20 per cent limits recently put in place by APRA, the RBA's October Financial Stability Review found, as housing credit growth cools.

One way to gauge the risk in household debt is to look beyond the total amount owed and ask how stretched borrowers are relative to their incomes. That is the territory covered by one of the more technical findings in the Reserve Bank of Australia's (RBA) October 2026 Financial Stability Review (FSR), released on 1 October.

The Review reported: "The aggregate share of new high DTI lending remains well below APRA's recently implemented limits of 20 per cent". In plain terms, the proportion of new home loans written at high debt-to-income (DTI) ratios is comfortably inside the ceiling set by the prudential regulator.

The finding sits alongside the RBA's broader conclusion that "Most Australian households with mortgages remain well placed to manage more difficult conditions", and helps explain why the Bank is not concerned that lending standards have slipped.

What a debt-to-income ratio tells you

A debt-to-income ratio compares how much a borrower owes with how much they earn. The higher the ratio, the larger the debt relative to income, and the larger the share of income that repayments are likely to absorb.

That matters most when conditions change. For a borrower carrying a large debt relative to income, a given rise in interest rates translates into a bigger increase in repayments as a share of their earnings. A drop in income has a similar effect, leaving less room to keep up with a loan sized against a higher pay packet.

Assistant Governor (Economic) Sarah Hunter set out the mechanics on The Pay Off podcast on 22 September: if the RBA raises rates, a borrower's minimum repayment goes up. The more a household owes, the more that adjustment bites.

Reading the finding

Three parts of the FSR's sentence are worth unpacking.

  • "aggregate share": the measure looks at new high-DTI lending across the system as a whole, not at any single lender's book.
  • "new" lending: it describes loans being written now, rather than the stock of existing mortgages. It is therefore a guide to whether risk is building in the current flow of credit.
  • "well below": the RBA did not describe the share as near or approaching the limits, but as well inside them.

The 20 per cent figure belongs to APRA. As the RBA's wording indicates, the limits apply to the share of new lending made at high DTI ratios. The RBA's role in the FSR is to report where lending sits relative to those limits and what that means for financial stability.

Because the aggregate share is well below the limits, there is considerable room beneath the ceiling at the system level.

The existing stock of loans tells its own story. Hunter said around 30 per cent of Australians have mortgages, and that just over 40 per cent of households with mortgages are two or more years ahead on their repayments – a reminder that many existing borrowers have built extra room since taking out their loans.

A cooler credit market

The DTI finding fits a wider picture of moderating credit. The Review noted that housing credit growth has eased recently, particularly for investors.

It also noted that the interest-only share of lending has increased over the past year, and said this by itself is not cause for concern. Interest-only loans attract attention because borrowers are not reducing their principal during the interest-only period. The RBA's assessment is that the recent increase does not, on its own, signal a problem.

Credit conditions are being shaped by monetary policy. The RBA's Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent on 29 September, its fourth increase this year. Governor Michele Bullock said at her media conference that day that scheduled mortgage payments, including interest, are back up to around 10 per cent of household disposable income. She also noted that "it can take 12, perhaps even 18 months" for the full effect of rate changes to flow through, so the impact of this year's increases on borrowers is still unfolding.

Why lending standards matter for resilience

The quality of new lending today shapes how resilient households will be in future. Borrowers who take on loans at moderate DTI ratios generally have more room to absorb rate increases or income shocks than those stretched to the limit.

The rest of the FSR's household findings point in the same direction:

  • The share of variable-rate owner-occupier borrowers in cash-flow shortfall "remains relatively low at around 2 per cent".
  • The median borrower can cover "over a year of scheduled mortgage payments at current interest rates" from offset and redraw buffers.
  • There are "less than 1 per cent of borrowers" owing more than their property is worth.
  • Arrears of 90 days or more increased a little over the year to date but remain around pre-pandemic levels.

In the RBA's severe stress scenario, where the "unemployment rate increases to 6.3 per cent, inflation increases to 7 per cent, and the cash rate rises to 5.6 per cent", the share of mortgagors at higher risk of default rises to around 5 per cent – only a little higher than the 2023 peak.

At the system level, the RBA also concluded that "Australian banks are well positioned to continue lending, even in a downturn".

The bottom line

The October FSR found that "The aggregate share of new high DTI lending remains well below APRA's recently implemented limits of 20 per cent". Combined with easing housing credit growth, particularly for investors, that suggests risk is not building rapidly in the flow of new mortgages.

The rise in interest-only lending is worth noting, but the RBA said it is not, by itself, cause for concern. What to watch: future FSRs and APRA data for any pick-up in high-DTI lending, and the RBA's next decision at 2.30 pm AEDT on 3 November. Questions borrowers may wish to consider include how their own debt compares with their income, and how a change in rates would affect their repayments.