Just as many of us were wrapping our heads around Loan-to-Value Ratios (LVRs), the financial regulator APRA announced in late November that it will introduce official limits on high debt-to-income (DTI) home loans to help keep lending sensible and sustainable.

From 1 February next year, banks and other authorised lenders will only be able to issue up to 20% of their new mortgages at a DTI of six times income or higher. This cap applies separately to both owner-occupier and investor loans.

Until now, there hasn’t been a strict regulatory limit, although most lenders kept their own internal benchmarks, sometimes allowing borrowing up to seven times income. APRA’s change tightens and formalises those settings.

DTI vs LVR — What’s the difference?

While they sound similar, DTI and LVR measure two separate things when it comes to your borrowing capacity.

Debt-to-Income Ratio (DTI)

The DTI considers your overall borrowings compared with your gross yearly income.

Formula: Total Debt ÷ Total Gross Income

In light of the APRA announcement, a DTI of six is now considered the line in the sand. Once you’re there, most lenders won’t stretch the loan any further, even if you have substantial savings, a good credit score, plenty of equity or a stable job. In other words, you might tick every other box, but if the DTI is too high, it may cap how much you can borrow.

Loan-to-Value Ratio (LVR) LVR measures how much you’re borrowing compared with the value of the property.

Formula: Borrowed Amount ÷ Property Value

LVR is usually what determines:

• how much deposit you’ll need (e.g. aiming for 20%)
• whether you’ll need Lenders Mortgage Insurance (LMI)
• how risky your application looks to the lender

Most buyers are familiar with LVR because it’s linked directly to deposit size. But fewer people realise that DTI can actually be the deciding factor — especially in today’s lending environment where incomes, repayments and loan sizes are all carefully balanced.

Real examples: how DTI affects borrowing

Our Broker has shared examples showing how factors like family size and living arrangements can influence borrowing power, even when two households earn the same income.

Example 1: Couple with two children

Combined income: $190,000

This table shows that, even as borrowing power for investment purposes increases, the DTI ratio is approaching the maximum acceptable level. Also, please note that dependants will reduce borrowing capacity, as more mouths to feed reduce any surplus income.

Example 2: Couple with no children

Combined income: $190,000

According to Craig Betailli, Senior Broker at Our Broker, the key takeaway from both examples is that DTI rules can have a bigger impact on investors than on owner-occupiers, simply because investment loans often involve bigger balances.

Also be mindful that once a borrower hits a DTI limit, the rule applies almost universally. Unlike borrowing capacity, which can vary by as much as 20% between different lenders, the DTI ceiling is largely fixed. In practical terms, once you’ve hit that threshold, shopping around won’t make much difference.

To get a clear picture of your DTI and how it may affect your home loan pre-approval, contact Our Broker on 1800 913 677.