What is a debt-to-income ratio?

The lender adds up everything the applicant will owe once the new loan settles: the home loan itself, any investment loans, car and personal loans, and the limits rather than the balances on credit cards and buy now pay later accounts, since a limit can be drawn at any time. It then divides that total by gross annual income before tax, using the same income figure it verified for serviceability, sometimes with rental income discounted.

The result is a multiple rather than a percentage. A couple earning $150,000 between them who would owe $750,000 after buying have a DTI of five. Lenders publish or apply their own ceilings for a home loan, and applications above the ceiling are declined or escalated regardless of how the serviceability calculation comes out.

Serviceability asks whether the repayments fit: income less declared and benchmark living expenses, with the loan tested at a rate above the actual one. A borrower can pass that test and still carry a DTI that APRA regards as risky, because a large debt on a high income leaves little room if income falls or rates rise. That is why regulators watch DTI alongside the loan-to-value ratio as a measure of how stretched new borrowers are.

In late 2025 APRA activated a DTI limit for the first time. From February 2026 each bank may write no more than 20 per cent of its new owner-occupier loans, and 20 per cent of its new investor loans, to borrowers with a DTI of six or more, measured quarterly. The limit binds authorised deposit-taking institutions; non-bank lenders sit outside it, though they are still subject to responsible lending obligations.

Car and personal loan lenders rarely publish a DTI ceiling, but the same arithmetic runs in their credit assessment, and a customer whose existing commitments are already a large multiple of income is a harder approval. The order of borrowing matters too: a car loan taken a few months before a home loan application lifts the DTI on the bigger loan, which is worth knowing when both purchases are planned.

Business lending uses different ratios. A lender assessing a company looks at the debt service coverage ratio and gearing rather than DTI, though a sole trader's personal and business debts are often assessed together. A HELP debt is a special case: since September 2025 APRA has excluded it from the DTI ratio banks report, because repayments rise and fall with income, though it still counts in serviceability unless it will be cleared within a year.