This policy is designed to curb the growth of high-risk lending practices that could jeopardise financial stability. By restricting the proportion of high DTI loans, APRA aims to ensure that borrowers are not over-leveraged, particularly in a market characterised by rising property prices and increasing household debt.

For borrowers, this means that obtaining a mortgage with a high DTI ratio will become more challenging. Lenders will need to exercise greater scrutiny when assessing loan applications, potentially leading to stricter eligibility criteria and more rigorous income verification processes. Prospective homebuyers should be prepared for more stringent lending standards and may need to adjust their borrowing expectations accordingly.

From a lender's perspective, the cap necessitates a reassessment of lending portfolios and risk management strategies. Banks will need to balance their loan books to comply with the new regulations while continuing to meet the demand for home loans. This could result in a shift towards more conservative lending practices and a focus on lower-risk borrowers.

Overall, APRA's introduction of the DTI cap reflects a proactive approach to maintaining financial stability in the face of a rapidly evolving housing market. Both borrowers and lenders must adapt to these changes to ensure sustainable growth and mitigate potential risks associated with high levels of household debt.