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APRA’s New 2026 Debt-to-Income Rules – What Property Buyers and Investors Need to Know

The Australian Prudential Regulation Authority (APRA) has announced a significant shift in the way banks assess mortgage risk, introducing debt-to-income (DTI) lending limits for the first time in Australia’s history. These new rules, effective 1 February 2026, place Australia in line with countries such as New Zealand, the UK, Canada and Ireland, where DTI limits have long been a tool used to cool overheated property markets and reduce systemic financial risk.

This change is expected to reshape how both property investors and home buyers approach borrowing, particularly those who rely on higher leverage to enter the market.

What APRA Is Changing in 2026

From early 2026, banks and lenders must ensure that no more than 20% of their new quarterly mortgage lending goes to borrowers whose debt-to-income ratio is six times or higher. A DTI ratio measures the size of a loan against the borrower’s gross annual income. A ratio of six, for instance, means a borrower earning $75,000 before tax could theoretically take out a mortgage up to $450,000.

The 20% cap will apply separately to owner-occupier and investment lending. Banks will not be permitted to combine these lending categories, meaning investors will be assessed against their own lending pool. APRA has included exemptions for bridging loans and construction loans, recognising that these types of lending behave differently from standard mortgage products.

Internationally, the new Australian limit is relatively generous. New Zealand’s DTI limit sits between six and seven times income, while Ireland and Canada restrict lending far more tightly. Australia’s approach suggests a desire to curb the most aggressive forms of high-debt borrowing without dramatically restricting access to credit.

How Banks Will Apply the New Rules

The new framework requires lenders to track and manage their quarterly lending volumes, ensuring that the share of high-DTI loans remains under the 20% threshold. While banks will still be permitted to issue loans above a DTI of six, they will need to be far more selective in doing so. If a bank is nearing its cap, it may become increasingly conservative, tightening assessment criteria or prioritising applicants with stronger financial profiles.

This is not the first time APRA has stepped in to control mortgage lending risk. In 2017, it imposed temporary limits on interest-only loans, which significantly changed investor borrowing patterns. Although those limits were later lifted, they demonstrated the powerful role APRA can play in shaping mortgage behaviour. The new DTI rules represent the next phase of its prudential management strategy.

What Borrowers Can Expect Under the New DTI Cap

Borrowers with a DTI below six are unlikely to notice any change to their borrowing experience. The rules are aimed at the upper end of the risk spectrum, where households are most vulnerable to interest rate rises, income shocks or market downturns.

However, borrowers with a DTI of six or higher may find that accessing credit becomes more challenging, especially if they apply during a quarter when their bank has already used most of its high-DTI allocation. In such cases, banks may approve fewer high-DTI loans, increase interest rates for this segment, or restrict access entirely until the next quarter.

Existing mortgage holders will remain unaffected unless they wish to refinance. Even then, refinancing at a DTI above six may be more difficult depending on the chosen lender’s capacity at the time.

The Impact on Property Investors

Property investors are one of the groups most likely to feel the effect of APRA’s new lending rules. Investment loans are often larger, and many investors carry multiple mortgages, pushing their DTI ratios higher than those of owner-occupiers.

The new rules may prompt banks to be more selective with investor lending, particularly for borrowers with multiple properties or high gearing. Some investors may shift their strategies, focusing on lower-priced properties, diversifying into regional markets, or reducing leverage in order to remain eligible for finance.

While APRA’s changes are designed to reduce systemic risk, they may also unintentionally reshape investing patterns, slowing the pace of aggressive portfolio expansion and reducing the number of investors who rely heavily on high leverage.

First-Home Buyers and Market Inequality

First-home buyers often borrow at higher income multiples due to smaller deposits and less equity. For some, the DTI cap may constrain borrowing capacity, particularly in capital cities where even entry-level homes require substantial loans.

This may push certain buyers toward more affordable suburbs or regional locations. International research shows that such limits can exacerbate socio-economic divides, particularly in markets like Norway and Israel, where households have been forced into longer commutes or areas with fewer opportunities.

Although APRA’s limit is comparatively flexible, this dynamic could still emerge in Australia’s more expensive property markets.

APRA’s Broader Objective

APRA’s introduction of DTI limits signals its growing concern with household debt levels and broader financial vulnerabilities. While the regulator says it does not expect the new rules to severely restrict overall mortgage lending, the move is designed to send a clear message: high-risk borrowing must be controlled before it becomes a systemic problem.

In global markets, DTI caps have proven effective at reducing household stress and preventing sharp rises in risky debt. Australia’s adoption of this policy reflects a proactive approach to maintaining financial stability, particularly after a period of rising rates and heightened cost-of-living pressure.

What This Means for the Australian Housing Market

The new rules may gradually reduce the number of highly leveraged buyers in the market, which could slow price growth in certain segments. At the same time, competition among borrowers with lower DTI ratios may intensify. Although immediate effects on the property market may be limited, the long-term implications could include more moderate price growth, greater scrutiny from lenders, and a shift in buyer behaviour toward more affordable locations.

Source: APRA

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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

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Understanding Offset Accounts and Redraw Facilities for Investment Loans

As the Australian housing market continues to evolve, property investors are increasingly exploring strategic financial tools to optimise their investment returns and manage loan repayments. Two common features attached to home and investment loans in Australia—offset accounts and redraw facilities—offer different advantages. Understanding how they work, particularly in the context of investment loans, can help investors make more informed financial decisions.

Overview of the Australian Housing Market

In recent years, the Australian property market has seen a mix of volatility and growth. While the COVID-19 pandemic caused a temporary slump, subsequent years witnessed a sharp rebound in housing prices, fuelled by low interest rates, supply shortages, and strong demand. As of 2025, interest rates have stabilised but remain elevated compared to historical lows, influencing borrowing behaviour and prompting investors to consider how to structure their loans more efficiently.

Against this backdrop, understanding loan features like offset accounts and redraw facilities becomes especially relevant for investors looking to maximise tax efficiency and flexibility.

What Is an Offset Account?

An offset account is a transaction account linked to your mortgage. The balance in this account is offset daily against your loan balance, reducing the amount of interest charged on your loan.

How It Works:

Suppose you have a $500,000 investment loan and $50,000 in an offset account.
Interest is calculated on $450,000 instead of the full loan amount.
You can still access the $50,000 at any time, like a regular transaction account.

Pros:

Reduces interest payable, potentially saving thousands over the life of the loan.
Offers liquidity: funds remain fully accessible.
No need to formally apply for a withdrawal.

Cons:

Offset accounts may come with higher fees or interest rates.
Not all lenders offer 100% offset for investment loans.

What Is a Redraw Facility?

A redraw facility allows you to access any extra repayments you’ve made on your mortgage over and above the minimum required.

How It Works:

Say your minimum repayment is $2,000/month, but you’ve been paying $3,000.
The extra $1,000 per month accumulates as available redraw.
You can access those extra funds later, often via online banking.

Pros:

Helps reduce loan interest by lowering the principal.
Can be a form of forced savings with access when needed.
Usually available on variable rate loans.

Cons:

Redraws may be subject to conditions or delays.
Some lenders impose minimum redraw amounts or fees.
Not as liquid or flexible as an offset account.

Investment Loans: Tax Considerations

For investment properties, tax implications play a critical role when choosing between an offset account and a redraw facility.

Offset Account:

Using an offset account is generally tax-effective for investment loans.
Since the funds haven’t been used to pay down the loan, they don’t affect the tax deductibility of the interest.
This is crucial because investors often claim interest on investment loans as a deduction against rental income.

Redraw Facility:

Using redraw to access extra repayments may affect the purpose of the loan.
If the redrawn funds are used for personal expenses (e.g., holidays, buying a car), the interest on that portion may no longer be deductible.
This can complicate tax reporting and reduce the effectiveness of your investment loan.

ATO Guidance: The Australian Taxation Office has clear guidelines stating that deductibility of interest depends on how the funds are used, not the source of the loan. Therefore, mixing personal and investment redraws can lead to complex tax consequences.

Which One Is Better for Property Investors?

Feature	Offset Account	Redraw Facility
Liquidity	High	Moderate
Interest Savings	Yes	Yes
Tax Simplicity	Higher	Potentially complex
Accessibility	Immediate	May have restrictions
Fees	May be higher	Usually lower

In general, offset accounts are more favourable for investment loans due to their tax clarity and flexibility, despite potentially higher associated costs. Redraw facilities, while still useful, require careful management to avoid unintentionally compromising tax deductibility.

Final Thoughts

As the Australian property market adjusts to ongoing economic shifts, smart use of financial tools can give investors a meaningful edge. Both offset accounts and redraw facilities serve to reduce interest and increase flexibility—but for investment properties, the tax implications of how you use these features can significantly affect your financial outcomes.

Before making any decisions, consult with a mortgage broker, accountant, or financial advisor who understands both lending structures and tax law. Structuring your loan correctly from the beginning can save you considerable stress and money in the long term.

References

Australian Taxation Office (ATO): www.ato.gov.au
Reserve Bank of Australia (RBA): www.rba.gov.au
CoreLogic Property Market Reports
Australian Securities and Investments Commission (ASIC) Moneysmart: www.moneysmart.gov.au

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Investment Property loans – A Guide for Property Investors

In Australia, interest on investment property loans is one of the most significant tax deductions available to property investors. However, claiming this deduction isn’t always straightforward. The deductibility of interest depends not on the original purpose of the loan, but on how the funds are used over time—a principle confirmed in ATO Taxation Ruling TR 2000/2.

Unfortunately, many investors unintentionally compromise their tax position by misusing redraw facilities, repaying and reborrowing without proper structure, or refinancing for mixed purposes. These seemingly simple actions can lead to a portion of the loan being classified as private use, thereby reducing the amount of interest eligible for deduction.

Below, we outline three common traps that could affect your ability to claim full interest deductions on your investment loan—and strategies to avoid them.

Trap 1: Redrawing for Personal Use (Loan Tainting)

Using the redraw feature of an investment loan for personal expenses—such as holidays, private school fees, or buying a car— “taints” the loan. The Australian Taxation Office (ATO) treats any redraw used for private purposes as non-deductible, even if the loan was initially used for a rental property.

Example – Withdrawal

Peter originally borrowed $500,000 to buy an investment property. He later redraws $25,000 for a family holiday. His total loan becomes $525,000, but only $500,000 of it relates to investment use. From that point forward, only 95.24% of the interest is tax-deductible.

Importantly, repaying the personal component later does not automatically restore full deductibility unless the loan is formally split or restructured. Ongoing repayments must also be apportioned between the investment and private components.

Trap 2: Repaying and Redrawing Without Tracking Purpose

Some investors believe that they can repay and then redraw from an investment loan without affecting its deductibility. However, the ATO assesses each redraw as a new borrowing. The purpose of each redraw—not the loan’s history or security—is what determines deductibility.

Example – Redraw

Stewart borrowed $400,000 to purchase a rental property. Over time, he repays $100,000. Later, he redraws $50,000 for renovations on his private home. Even though the loan account remains the same, the ATO classifies this $50,000 as a new private loan. Consequently, only 85.71% of the interest on the $350,000 balance is deductible.

Had he used the redraw funds for investment property repairs, that portion would have remained deductible.

Trap 3: Refinancing with Mixed Purposes

Refinancing an existing investment loan can also result in lost deductions if part of the new loan is used for personal reasons. The ATO requires the interest to be apportioned based on the use of funds—not on what the loan is secured against.

Example – Refinancing
Julie refinances her $300,000 investment loan and increases it to $400,000. The additional $100,000 is used to pay off personal credit cards. As a result, only 75% of the interest on the new loan remains deductible.

The $100,000 allocated to private use permanently reduces the deductible portion of the interest, even though the loan continues to be secured by her rental property.

Tips to Maximise Your Investment Loan Deductions

To preserve and maximise the tax deductibility of interest on your investment loan, consider the following best practices:

Split your loans: Use separate loan facilities for investment and personal purposes. This prevents the need to apportion interest and simplifies record-keeping.
Use offset accounts instead of redraws: An offset account can reduce interest without altering the purpose of the loan. Importantly, withdrawing from an offset account does not “taint” the loan.
Maintain clear records: Document the use of all borrowed funds meticulously, especially when redrawing, refinancing, or restructuring your loan. A clear audit trail helps substantiate your claims with the ATO if required.

Conclusion: Structuring Loans for Long-Term Tax Efficiency

Investment property loans can offer powerful tax benefits—but only when used correctly. The way loan funds are accessed and applied over time plays a critical role in determining the deductibility of interest. Missteps such as redrawing for private use, refinancing without purpose-based apportioning, or failing to split loans can lead to unexpected tax liabilities.

By understanding the rules and proactively managing your loan structure—with support from your accountant or financial adviser—you can ensure your interest deductions remain intact and your investment property continues to work efficiently for you at tax time.

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Property Investor Tips for the new Financial Year

2023 is already shaping up to be quite a challenging year for property investors and landlords, with the impacts of interest rate rises beginning to bite and economic uncertainty dampening the market. There are, however, tried-and-tested ways for investors to get ahead. Get the latest tips for property investors.

Recalibrate your investment strategy

Investors who want to succeed this year must focus on strong capital growth areas with high rental demand. With immigration opening up in Australia, the government expects some 235,000 immigrants so focus on areas with strong population growth potential and look for properties with high rental returns. With vacancy rates at an all-time low around the country, high rental yields can offset any potential rises in interest rates.

Learn from mistakes

Time is an investors’ biggest asset, and one mistake investors should avoid over the next year or two is buying into big projects with two to four-year sunset clauses.

With banks constantly changing their lending criteria and developers uncertain of market conditions there is a considerable risk that some developments may not proceed. When this happens your deposit money is tied up and you lose years of potential compounding capital growth.

Another mistake is zeroing in on mining towns where mining is the only industry. With changes in government and new energy all the rage, mining towns could become a thing of the past, severely affecting property prices and rent returns.

Tap the right people – brokers, agents, and managers

While it is not impossible for one to succeed in the property investing space without tapping agents and brokers, it still pays to have the right people on the team. First Brick Property Buyers Agency director Kyrillos Mansour said there are merits to getting a mortgage broker, especially for investors who are starting to build their portfolio.

A well-informed mortgage broker can significantly benefit investors — they can compare hundreds of loan products and find the best-fit solution for the investor’s individual situation and needs. With a mortgage broker, the arduous task of speaking with multiple banks can be eliminated, reducing the hassle of the loan application process. Buyers agents are as important for investors – Mr Mansour said a knowledgeable and data-driven agent can immensely help investors decide where to purchase.

In scenarios where the investor is proactive and has a data-driven approach, bbuyers’agents may not be necessary, but their experience in negotiating and transacting hundreds to thousands of properties can still aid in securing a better deal. They can help investors make informed decisions, free from emotional biases. This is one of the advantages of investors who tap buyers agents over those who take the do-it-yourself route.

Meanwhile, those with established portfolios are highly encouraged to get a property manager.

Here are some of the other benefits of getting a property manager.

Professional management. With their professional background, managers can ensure that properties are well maintained and running smoothly, maximising the return on investment for the investor.
Compliance. Property managers are knowledgeable about various laws and regulations.
Tenant relations. With property managers, investors are able to secure quality tenants. Managers also handle the lease negotiation and any disputes that may arise.
Financial management. Investors can stay on top of the financial performance of their properties with the help of managers who take over the jobs of rent collection, bookkeeping, and preparation of financial reports.

Improve the marketing of the property

In a competitive market, improving the rental listing is key to ensuring that the property stands out. Consider the following strategies:

If the property is newly bought, ask the selling agent for existing professional photos, floorplan, and videos of the property.
For existing properties, spend some money on professional photography for the listings. Add lifestyle shots showing nearby amenities to boost the appeal of the listing.
Show the property during the daytime and early evening.
Have advertised openings with pre-qualified applicants.
Be flexible to allow the maximum audience to see the property.
Pay for a premium listing to highlight online.

Retain quality tenants

Maintaining a good relationship with tenants is a must. First, fix any problems in a timely manner.

investors must understand that losing a good tenant can dent their finances. For example, if a good tenant cannot pay an extra $50 a week to bring it to a market rent of $600 per week and you decide to list the property for rent on the open market, the costs to re-let the property could be up to $2,400 to the landlord. You may lose a good tenant and obtain a bad one, you just never know. Do your calculations and ensure it is worth the risk.

Think of green upgrades

Energy efficient upgrades can be attractive to potential renters as they can see a reduced electricity bill benefit and result in a tenant occupying the property longer and therefore reducing vacancy.

However, not all upgrades can provide bang for your buck. For instance, investors must weigh the pros and cons of solar panels. Solar panels can cause roof leaks and future maintenance or replacement costs but if the landlord is paying for the electricity, this can be a way to increase cash flow. You need to weigh up the cost of installing the devices against the savings to determine viability.”

Keep in mind that it takes time, energy, and fossil fuels to create these green upgrades, which also have a limited shelf life. Still, there are some practical green upgrades that are not as costly and can be easy to do, like having energy-efficient appliances. Sealing windows and doors is also a good upgrade, as it can help reduce airflow inefficiencies and improve the overall quality of air inside the property.

Get the property insured

A study from the Insurance Council of Australia showed that only around three in five rental properties across the country are covered by landlord insurance. There is no denying the importance of landlord insurance, which protects investors from potential lawsuits, any potential loss due to damage, and other risks.

When choosing landlord insurance, make sure the policy covers accidental damage caused by the tenants as well as loss of rent. Shop around or engage a good insurance broker to do the work for you. Make sure you choose an insurer who specialises in landlord insurance.

A landlord insurance policy usually covers the dwelling itself and other structures within the property. However, it might also be useful to add some optional coverage to the policy including vandalism, burglary, renovation, and building codes.

Take advantage of tax breaks

Investors must also learn to not just keep all the receipts for works done on the property but to also record all fees, including interest and bank costs.

You may also want to consider buying the property through a family trust or even a self-managed superannuation fund (SMSF). If you don’t already have one, seek out a qualified accountant who understands property investment and can recommend the best purchase structure according to your situation. Use a depreciation schedule to help increase your tax deductions.

A new home will give greater depreciation benefits than an older home. You only have to get a schedule done once and give it to your accountant who will use the depreciation to reduce your taxable income.

Conduct a home loan review

Given the changes in interest rates over the past months, investors must revisit the terms and features of their home loans. Interest-only payments is something worth considering on the back of rising rates. This will free up more cashflow and ensures lower repayments. As long as the total value of the property increases during your time as owner, you will see good capital growth with this option.

Taking advantage of an offset account is also a good route to take, as it can help provide a safety net for when unexpected maintenance costs arise.

It’s also a good idea to increase your frequency of repayments. Over time, this limits the amount of total interest owed on your property.

Checking your tenancy agreements

When finalising the tenancy agreement, landlords must:

Have everything clearly laid out in writing to avoid any future complications
Prepare for the worst and reduce your risk to achieve the best
Include all necessary clauses
Seek professional advice from the property manager and/or solicitor before signing the agreement
Always keep a copy of the signed agreement for your records and future reference
Know when all appliance warranties expire to ensure they are not replacing something that is under warranty – this also creates future replacement expectations

Know the people you are renting to

Confirm the tenant’s identity by cross-checking with government IDs
Understand their level of employment and ensure their ability to pay rent
Ask what their future plans are – how long do they intend to stay?

Prepare for the worst-case scenario

Determine the appropriate number of days you must give the tenant to vacate the property after giving them notice
Know your rights to the bond payment in the event of damages
Know what actions you need to take if a tenant decides not to vacate the property and ensure the property manager has experience in these situations

How can we help? if you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

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What is the best loan type for an Investment Property?

The downturn or slowing down in the housing pricing market, means opportunities for Property investors. Our finance team has put together some ideas on the best loan types for investors.

When buying an investment property, you may need to consider a different type of loan than the one on your owner-occupied property. Maximising cash flow is a primary goal of all property investors and you should consider the following.

What are your investment loan options?

There are two main loan options: an interest-only loan or a principal and interest loan. You can also choose from a fixed or variable loan.

Interest-only investment loan

An interest-only (IO) loan is a home loan where borrowers are only required to pay off the interest portion of the loan for an agreed period of time, generally between one and five years. At the end of that set period, the repayments will transition to principal and interest (P&I) repayments.

Advantages of Interest only loans

Lower repayments: As you’re only paying off the interest portion of the loan, the temporary lower repayments can free up cash for other expenses like renovations or purchasing another property.
Tax incentives for investors: Interest-only loans are popular with investors who plan on making a profit by selling their property within the IO period (eg. after making a capital gain) as it reduces their expenses.

Disadvantages of Interest only loans

Repayment shock upon expiry: The expiry of the interest-only period can come as a shock if you’re not prepared as the costs of repayments suddenly increase.
Generally higher interest rates: Interest-only loans generally have higher interest rates than principal and interest (P&I) loans, however, this isn’t always the case depending on the lender.
Higher interest costs overall: As you’re not paying off the principal (the amount borrowed) during the interest-only term, you’ll end up paying more interest over the life of the loan than someone who has been paying both principal and interest over the entirety of their loan term.
Less equity: By only paying off the interest portion of the loan, you’re not building up any equity in the property. This can depend on what the property market is doing – some investors have built equity in the value of their properties thanks to property price increases.

Principal and interest investment loan

Principal and interest (P&I) loans are where the borrowers make contributions towards the principal (the amount borrowed) while also paying off the interest portion of the loan.

Advantages of Principal and Interest investment loans

Paying off the value of the property: Unlike interest-only loans, borrowers are paying off the amount borrowed, so the actual house you’ve borrowed all that cash for is being slowly paid off.
Building equity: Because you’re paying off the amount borrowed, you’re slowly building up equity in the property, helping you own the asset sooner.
Generally lower interest rates: P&I home loans generally have lower interest rates than IO loans, though this can depend on the lender.
Pay less interest overall: As you’re paying off the principal amount plus interest, you’ll pay less interest over the life of the loan than someone on interest-only repayments.

Disadvantages of Principal and Interest investment loans

Higher repayments: Repayment amounts are higher with P&I loans as you’re paying off the amount borrowed plus the interest portion of the loan.

Fixed vs variable rates

A fixed interest rate can be a great product for investors who want more certainty about their outgoing costs and want to make budgeting as easy as possible. Fixed rates allow investors to match their loan term to the length of time they anticipate owning the property. However, fixed-rate loans aren’t as flexible as variable rate products, don’t offer the same features, and usually don’t allow extra repayments. Breaking a fixed rate term early also incurs break costs.

Variable rates fluctuate over time according to cash rate movements and other factors, which means monthly repayments will also vary. A variable interest rate may suit investors who aren’t as concerned about repayment fluctuations and have a high level of awareness about how their cash flow levels may be impacted by rate falls or rises. Variable rate packages also generally offer extra features that fixed products don’t, such as offset accounts, redraw facilities, the ability to make additional repayments, loan splits, and so on. These features can allow investors to make the most of their investments.

Why interest-only loans tend to be popular with investors?

Many investors favour interest-only loans because they can claim a portion of their loan as an investment expense on their tax returns. According to the ATO, “If you take out a loan to purchase a rental property, you can claim the interest charged on that loan, or a portion of the interest, as a deduction. However, the property must be rented, or genuinely available for rent, in the income year for which you claim a deduction.”

There are some caveats to this rule but essentially, this means that investors can claim their entire mortgage repayments during the interest-only period as a tax deduction. The higher the loan balance and longer the IO period, the more an investor can maximise their tax-deductible benefits.

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Frequently Asked Questions

APRA’s New 2026 Debt-to-Income Rules – What Property Buyers and Investors Need to Know

Understanding Offset Accounts and Redraw Facilities for Investment Loans

Investment Property loans – A Guide for Property Investors

Property Investor Tips for the new Financial Year

What is the best loan type for an Investment Property?