Key Takeaways
- Two tests decide the outcome. Serviceability asks whether your income covers repayments at your actual rate plus three percentage points. Debt-to-income asks whether your total borrowing sits under six times your gross income.
- From 1 February 2026, each bank can write no more than 20% of its new investor lending at six times income or above, measured quarterly.
- A household on around $200,000 crosses the six times line on its second investment purchase, not its fourth.
- A rate move changes serviceability but leaves debt-to-income untouched, because no interest rate appears in that calculation.
Your first investment property loan probably came down to a single question, whether the file serviced. Your borrowing capacity on a second investment property answers to two questions, and they no longer move together.
Investment property loans are still assessed on serviceability, which tests whether your income covers every repayment at a rate well above the one you actually pay. Since February 2026, they also sit inside a debt-to-income (DTI) limit, which ignores interest rates and divides your total borrowing by your gross income.
Working out which one binds first is where we start as an investment property loan broker when a portfolio file lands, because the answer changes what is worth doing in the months before an application goes near a lender.
Which test caps your borrowing capacity on an investment property depends on how much debt you already carry.
What Changed for Investors in February 2026
The Australian Prudential Regulation Authority (APRA) has required lenders to assess home loans at three percentage points above the actual rate since late 2021. In November 2025, it added a second control:
Quotas Instead of Outright Bans
APRA now requires each authorised deposit-taking institution to limit lending at a DTI of six times or higher to 20% of its new residential mortgage lending, measured each quarter. Banks keep full discretion within that allowance to lend to creditworthy high-DTI borrowers in line with their own appetite. Where a new application would risk pushing a lender past its quota, APRA has said the lender may offer a smaller loan or defer the application to a later period. The lending is rationed, and the ration resets every quarter.
Limits for Investors and Owner-Occupiers
The 20% allowance applies to each bank’s owner-occupier and investor books separately, so investors compete only against other investors for that share. APRA reported the share of new investor lending at high DTI rising from 8% to around 10% over the year to the September quarter 2025, against a much lower figure for owner-occupiers.
Exemptions for New Builds and Bridging Loans
Loans for the purchase or construction of a new dwelling are exempt from the cap, as are bridging loans for owner-occupiers. The exemption removes the loan from the lender’s quota, not from serviceability, and not from your own ratio the next time you apply.
Lenders Outside Regulated Banks
Lenders outside APRA’s remit are not subject to the cap, and APRA has noted they hold around 4% of residential mortgage credit. It has also said it will monitor any shift of lending towards them and holds the power to extend these limits to them if needed. Pricing, terms and features there typically differ from a bank product, so any comparison needs to look past the DTI question.
Concessions for Smaller Banks
APRA applies a four-quarter rolling measurement to smaller institutions, allows a longer implementation period where needed, and gives them the option not to apply the new-build and bridging exemptions in their reporting. Two lenders may therefore treat an identical new-build file differently.
Reviews of Settings Since Activation
APRA confirmed on 28 May 2026 that the serviceability buffer stays at three percentage points, the countercyclical capital buffer at 1% of risk-weighted assets and the DTI limits at their current level. It also noted that preliminary March quarter data showed high-DTI lending sitting well below the limits, so they are not currently constraining bank lending overall. That is a system-level reading, not a guarantee about any individual lender’s position, and APRA has said it will adjust settings if needed.
How the Serviceability Calculation Runs
Assessable income comes in, assumed living costs and buffered repayments come out, and whatever is left is capitalised into a loan amount. Eight inputs do most of the damage on a portfolio file:
Shading Rent Against Vacancy and Costs
APRA’s guidance expects lenders to apply haircuts to income without prescribing a level, and rental haircuts are set by each lender and not published. On $148,200 of gross portfolio rent, counting 80% contributes $118,560 of assessable income and counting 70% contributes $103,740. That difference of $14,820 is a policy choice, not a change in your circumstances. Where a property is untenanted or still being built, most lenders want a rental appraisal from a licensed manager and may apply a further discount to a projected figure.
Loading Existing Loans With Buffers
Every loan you already hold is reassessed at its actual rate plus the buffer. On $2.6 million of existing property debt, the buffer alone adds roughly $78,000 a year of assessed cost that you never pay. Each property adds one shaded rent stream and one fully buffered repayment, and the buffered side is the larger number.
Applying Floors Beneath Assessment Rates
APRA expects a prudent lender to run both buffers and floors and to review them regularly, so some files are assessed at a minimum rate that sits above the buffered result. A cheaper actual rate stops improving your assessed position once the floor takes over. Floors differ between lenders and are not usually disclosed to applicants.
Assessing Interest-Only Repayments Over Residual Terms
An interest-only period helps your real cash flow. It does not help your assessed capacity, because APRA expects lenders to assess the repayment on a principal and interest basis over the specific term for which those repayments apply, excluding the interest-only period. A five-year interest-only period on a 30-year loan is assessed over 25 years, which produces a higher assessed repayment than a fresh 30-year loan of the same size. The structure that makes a property affordable this year can make the next application harder.
Setting Living Expenses Against Benchmarks
Lenders take the greater of your declared living expenses and the Household Expenditure Measure (HEM), a quarterly benchmark from the Melbourne Institute of Applied Economic and Social Research that scales with household size, dependants and income. The HEM tables are licensed commercially and not published, so you cannot look up the figure being applied to you. Declaring a number below the benchmark rarely helps, because the benchmark replaces it. Verified expenses above it will be used, so a large school or medical commitment can reduce capacity even when income is high.
Charging Notional Repayments Against Card Limits
A credit card creates an assumed monthly repayment based on its limit, regardless of the balance. On a portfolio file carrying several cards and an unused line of credit, those notional repayments accumulate against the same surplus that has to absorb four buffered mortgages. Closing a facility removes both the notional repayment and the limit from your total debt.
Discounting Income Outside Base Salary
Overtime, bonuses, commission, allowances and second-job income are typically counted only in part, and the proportion varies by lender and by how long the income has been running. Probation, a recent change of employer or a shift to self-employment can move the figure sharply. Two lenders reading identical payslips can produce assessable incomes tens of thousands of dollars apart.
Adjusting Assessable Income for Loss-Making Properties
Where a property runs at a loss, some lenders adjust assessable income for the tax effect of that shortfall and some do not. APRA sets no standard for it, so this is a matter of individual lender policy and of your own tax position, which is a question for your accountant. It can move a marginal file either way, and it does nothing for the DTI calculation.
How Lenders Build Your DTI Number
The DTI calculation has no interest rate, no living expenses and no repayment schedule in it. Under APRA’s reporting standard for residential mortgage lending, it is the credit limit of all debts held by the borrower divided by gross income. Six features of that definition catch portfolio investors out:
Credit Limits Counted in Full
A credit card counts at its limit, not its balance. A $20,000 card you never touch adds $20,000 of debt. The same logic reaches an undrawn equity release facility or an unused line of credit, which count at the approved limit even when the funds sit idle. Paying an interest-only loan down into redraw reduces your interest bill without reducing the limit, so it may do very little here.
Student Loans Excluded From the Definition
APRA removed all Higher Education Loan Program (HELP) debt from the DTI reporting definition, effective 30 September 2025, on the basis that HELP repayments are income-contingent. HELP debt can still affect serviceability, where APRA’s practice guide allows a lender to leave the repayments out only where the borrower will be largely unaffected over the mortgage term, using repayment within 12 months as the anchor example, and requires those loans to be approved and reported as exceptions to policy.
Consumer Debts Rolled Into the Total
Personal loans, car loans and novated leases sit in the numerator at their limits alongside your mortgages. APRA has also previously confirmed that buy now pay later debt is included, in guidance issued in 2022 and not restated since, so treatment is worth checking with the individual lender. Each of these is routinely left off a borrower’s own back-of-envelope sum.
Rental Income Counted on Varying Terms
Lenders differ on whether rent enters the denominator gross or after shading, which can shift a portfolio result by a few tenths. On a file sitting close to the line, that difference alone can decide which side of six times you land, so it is worth confirming with the specific lender.
Tax Benefits Left Out of Gross Income
The denominator is gross income. A portfolio structured for tax efficiency may improve your after-tax position considerably and still do nothing for this ratio, because the ratio never sees your tax return.
Interest Rates Omitted From the Calculation
Serviceability moves whenever rates move. DTI does not. Only two things change it, your total limits or your gross income, and for most portfolio investors neither moves quickly.
The Same Household at Two Different Stages
One household is held constant except for the number of properties. The figures are illustrative:
First Purchase at $190,000 Household Income
The starting position for a couple buying their first investment property:
- Combined gross salary of $190,000.
- Home loan of $600,000 on the family home.
- Investment loan of $640,000 on the new purchase.
- Credit card limit of $10,000.
- Gross rent of $680 a week on the new property.
Total debt of $1.25 million against assessable income of $218,288 gives a DTI of about 5.7, assuming rent counted at 80% and no student debt. Using gross rent instead, it is about 5.6. Either way, the household sits below six times, the cap is not in play, and serviceability decides the file.
Fourth Purchase at $210,000 Household Income
Several years on, with three investment properties held and a fourth under contract:
- Combined gross salary of $210,000.
- Home loan of $540,000 on the family home.
- Investment loans of $640,000, $700,000 and $720,000 on the existing properties.
- Investment loan of $680,000 on the fourth purchase.
- Credit card limit of $10,000.
- Gross rent of $2,850 a week across all four properties.
Total debt of $3.29 million against assessable income of $328,560 gives a DTI of about 10.
Those figures are a general guide only. Lenders set their own haircuts, expense benchmarks and internal limits, so your own result will differ.
Crossover Point on Second Purchase
The household crossed six times on the second purchase, not the fourth. At that point it was on a salary of $195,000, with a home loan of $580,000, investment loans of $640,000 and $700,000, the same $10,000 card limit and gross rent of $1,400 a week. Total debt of $1.93 million against assessable income of $253,240 gives about 7.6 times. From that point on, every application was a high-DTI application competing for a slice of somebody’s 20%.
To hold a ratio steady while adding a loan, the shaded rent from the new property must equal the new loan divided by the current ratio. At six times, that means gross rent worth roughly 21% of the loan amount every year. A property bought at a 3% to 4% gross yield with 80% borrowed produces rent worth about 4% to 5% of the loan. On those settings, a leveraged purchase raises the ratio every time.
Gap Between Ratio and Limit
Six times the fourth-purchase household’s assessed income is about $1.97 million, so the portfolio sits roughly $1.32 million past the threshold. Closing that gap from the income side would take gross income of about $548,000. Neither number is reachable by tidying credit limits.
Effect of Rate Moves Across Tests
A fall in rates lowers the assessment rate and lifts the surplus, which is why easing cycles feel like more borrowing power. Apply the same fall to the fourth-purchase household and the DTI stays at 10. A rise does the reverse, tightening serviceability while the ratio again sits still.
Position Under New Build Exemption
Had the fourth purchase been a new dwelling or a construction loan, it would fall outside the lender’s quota. The ratio would still read about 10, the file would still need to service, and the debt would still count at the next application. The exemption changes which constraint applies to this purchase, not whether the portfolio can carry the debt.
What Moves Each Number Before You Apply
Once you know which test binds, the useful work narrows:
Reducing Limits on Unused Facilities
Whether closing a facility is worth doing comes down to scale. On the fourth-purchase household, removing a $10,000 card shifts the ratio by about 0.03. On a household sitting at 5.9, the same $10,000 can be the difference between a standard file and a rationed one.
Lifting Income Against Existing Debt
At portfolio scale, the denominator does more work than the numerator. Sustained overtime, a completed probation period, a partner returning to work or a documented rent review all lift assessable income. Because lenders weight variable income differently, the same pay structure can produce materially different denominators.
Confirming Rent With Current Evidence
A signed lease, a current rental statement or a fresh appraisal from a licensed manager gives the assessor something to work from. Where rent has risen since the last review and the file still carries the old figure, the income side is understated on both tests at once.
Checking Credit Files Before Submission
Closed accounts that still show as open, a limit increase you never used and duplicate entries all inflate the numerator. Your credit report shows the accounts and limits held with other providers, so a file that disagrees with it is usually corrected upward, not downward. Requesting a copy and resolving errors takes weeks.
Timing Applications Within Quarters
Because the cap is measured quarterly, a lender’s remaining room changes through the period, and a lender with capacity in one quarter may not have it in the next. That is a matter of the lender’s own position, and no lender publishes it. A wide panel makes it possible to test where the room is, not to promise it will be there.
Matching Files to Lender Policy
Where a file is close to the line, the deciding variables are the haircut applied to rent, the floor rate, the treatment of interest-only debt held elsewhere, whether an adjustment for a loss-making property is available and whether rent enters the DTI denominator gross or shaded. We hold accreditations with more than 40 lenders, so those settings can be read against your actual numbers before anything is submitted.
Structuring Purchases Around Exemptions
A new dwelling or construction loan sits outside the lender’s quota, which can matter for a household already above six times. The valuation still needs to hold at settlement, and smaller lenders may not apply the exemption at all.
Where Your Ratio Sits Before You Bid
The question you probably arrived with was whether your income will stretch to another property. For a first investment purchase, that is the right question. Once you hold two or more, the more useful one is where your ratio currently sits, because that determines whether you are being assessed on your merits alone or on your merits plus a lender’s remaining quota for the quarter.
Run your own numbers before you go to contract. Total every limit, leave the student debt out and divide by your gross income. The answer tells you which lever is worth pulling and which will barely register.
Where you are weighing up a second or later investment purchase, the team at DIY Lending can walk you through how the two tests apply to your own position and what your options look like across the lenders we work with.
Frequently Asked Questions (FAQs)
1. Does spreading my loans across different lenders lower my debt-to-income ratio?
No. The ratio counts your total debt regardless of which lender holds each loan. Splitting a portfolio across lenders can still be useful for avoiding cross-security and keeping valuations independent, but it does not change the numerator.
2. Can I still borrow with a debt-to-income ratio above six times?
Often, yes. The cap limits how much of each bank’s new lending can sit at or above six times, so lending above that level continues within the allowance, and APRA reported in May 2026 that high-DTI lending was running well below the limits across the system. Whether a particular application succeeds still depends on serviceability, credit history, the security property and that lender’s appetite at the time, so no outcome can be treated as settled in advance.
3. How quickly does closing a credit card show up in an assessment?
Lenders generally want written confirmation from the provider that the account is closed, and it can take several weeks for the change to appear on your credit file. Where an application is imminent, the closure letter is usually accepted, though this varies by lender. Leaving a few weeks between closing accounts and applying avoids the timing question.
4. Does holding property in a company or trust keep the debt out of my ratio?
Usually not, where you personally guarantee the borrowing. Most lenders count that debt in the assessment on the basis that you are liable for it. The treatment depends on the structure, the lender and how income flows back to you, and the tax and legal consequences sit outside a lender’s assessment, so an accountant and a solicitor should be part of that decision.
5. Would a higher-yielding property help my ratio more than a cheaper one?
A stronger yield helps, because more rent enters the denominator, but holding the ratio steady on a leveraged purchase would take gross rent worth about 21% of the loan amount each year, which no standard residential yield reaches. A higher yield slows the increase instead of preventing it, and it may bring trade-offs in location, growth prospects or property type worth weighing separately.
This article is general information only. It does not take your objectives, financial situation or needs into account, and it is not a recommendation to enter into any credit contract. Figures, thresholds and lender policies described here are current as at the date of publication and are subject to change. You may wish to speak with a qualified professional about your own circumstances before acting.