APRA described the rule as a debt-to-income limit and signaled that the framework may evolve with ongoing monitoring of risk and lending standards.

APRA noted overall lending standards remain sound, but riskier loans have risen as rates fell and housing credit growth exceeded long-term averages, driven largely by investor lending.

APRA Chair John Lonsdale said the move is pre-emptive risk containment to bolster resilience in banking and households, with the potential for additional investor-specific limits if risks rise.

Lonsdale added that further measures could be introduced if macro-financial risks worsen or lending standards deteriorate.

APRA will impose a debt-to-income cap on residential lending starting next February, restricting lenders from providing more than 20% of total new lending to borrowers with debt levels at six times their income or higher.

Chalmers described the restrictions as prudent to maintain responsible lending, while Greens senator Barbara Pocock criticized them as not sufficiently addressing affordability and called for tougher investor-lending action.

The existing 3% mortgage buffer remains in place, with further details to come.

Treasurer Jim Chalmers backed the changes as prudent, saying they will help improve housing affordability and reduce financial risk.

The cap targets highly-geared borrowers—defined as loans at six times or more of income—and aims to curb risky lending amid an overheated property market.

The goal of the measure is to pre-emptively contain risks and strengthen resilience across the banking and household sectors.

The cap is not expected to bind immediately and should have little near-term impact on overall credit, though it may constrain investor borrowing as high-DTI lending approaches the threshold; exemptions exist for bridging loans and finance for new housing supply.

The restriction, effective from February, targets curb of risky lending and aims to bolster financial resilience and housing affordability, though some critics say it may be insufficient.