The Surge in High LVR Borrowing and its Implications
The landscape of Australian housing loans has seen a significant shift in recent years. One of the standout trends is the increase in high loan-to-valuation-ratio (LVR) borrowing, particularly since the inception of the Australian Government’s 5% Deposit Scheme in October 2025. This new development has sparked a range of responses, with some viewing it as an avenue to homeownership, while others expressing concerns about the potential risks involved. Let’s take a closer look at the data and insights shared by the Reserve Bank of Australia (RBA) in its latest Financial Stability Review.
The Impact of the 5% Deposit Scheme
The RBA has attributed the surge in high LVR lending for first home buyers primarily to the Government’s 5% Deposit Scheme. This initiative has been embraced by many aspiring homeowners, offering an accessible path to property ownership with a reduced initial financial burden. The RBA’s liaison program has noted a strong uptake of the new scheme.
Interestingly, the RBA has observed a trend among first home buyers availing themselves of the scheme. Rather than sticking to smaller loans, these buyers are opting for larger loans in relation to their property values. This shift in borrowing behaviour has undoubtedly contributed to the increase in high LVR lending.
APRA’s New Debt-to-Income Limits
The RBA’s Financial Stability Review also examined the recently imposed debt-to-income (DTI) borrowing limits by the Australian Prudential Regulation Authority (APRA). Instituted in February, these measures restrict new mortgage lending with a DTI ratio of six or more to no more than 20% of banks’ portfolios. This applies to both owner-occupier and investor portfolios separately.
The DTI limits are designed with certain carve-outs. These are intended to moderate the direct effects on new housing supply, facilitate smooth property transactions, and ensure fair treatment for smaller institutions. While the RBA anticipates that these new DTI limits will not cause immediate restrictions at the system level, it projects that they would have significantly constrained the supply of high DTI credit in previous periods.
The Historical Context of DTI Lending
Looking back at previous years, the RBA highlights two periods where the new DTI limits would have had a substantial impact on high DTI lending. In 2021 and 2022, when high DTI lending flows were at their peak, the newly imposed limits would have significantly curtailed this riskier form of lending. Similarly, in 2018 and 2019, the restrictions would have limited high DTI lending to investors. However, they would not have had a significant effect on high DTI lending to owner-occupiers.
Historically, a larger proportion of the major banks’ new lending has a DTI ratio over six at origination, compared with other banks. This trend underlines the significance of APRA’s new measures in shaping the future of mortgage lending.
As the landscape of housing loans continues to evolve, it will be critical to monitor these trends and their implications for both lenders and borrowers. Understanding these dynamics will be key to ensuring a stable and sustainable housing market.
For more detailed information, please find the original report here.
