How APRA’s 2026 Lending Changes Are Driving Demand for Private Lending in Australia

From 1 February 2026, APRA introduced debt-to-income lending limits that cap how many high-DTI loans banks can write. For property investors and business owners already stretched by tighter bank criteria, these APRA lending changes are accelerating demand for private lending in 2026 and beyond.

This article explains what changed, who is affected, and why non-bank lenders are now playing a more critical role than ever in Australian property finance.

What Did APRA Change in February 2026?

The Australian Prudential Regulation Authority activated a debt-to-income cap that limits authorised deposit-taking institutions to issuing no more than 20 per cent of new mortgage lending at a DTI ratio of six times income or higher. The cap applies separately to owner-occupier and investor lending.

In practical terms, banks must now restrict the share of their loan book going to borrowers whose total debt exceeds six times their gross income. While the cap is not currently binding for most lenders at an aggregate level, it has a disproportionate impact on one segment: property investors.

APRA data shows that approximately 10 per cent of new investor loans already exceed the six-times-income threshold, compared with just 4 per cent of owner-occupier loans. As interest rates ease and property values rise, that share is expected to grow, pushing more lenders closer to the cap.

Why Investors and Business Owners Are Most Affected

The DTI cap does not change how much any individual borrower can borrow. It changes how many high-leverage borrowers a bank is willing to approve.

This distinction matters. A property investor building a multi-asset portfolio often carries a higher DTI ratio than a first home buyer. The same applies to self-employed business owners who hold investment property alongside business debt. Their total debt relative to income may exceed six times, even when the underlying assets are strong and the cash flow is healthy.

Under the new rules, banks have a limited allocation for these borrowers. Once a bank reaches its 20 per cent cap on high-DTI lending, additional applications in that category may be declined, delayed, or subject to conditions that make the deal unworkable. This is not a reflection of the borrower's quality. It is a portfolio management constraint imposed on the lender.

How APRA Lending Changes in 2026 Are Shifting Borrowers Toward Private Lending

APRA's lending limits apply only to authorised deposit-taking institutions, which means banks, credit unions, and building societies. Non-bank lenders and private lenders are not ADIs and are therefore not subject to these restrictions. A private lending provider assesses each deal on its individual merits, focusing on the security property, the loan-to-value ratio, and the strength of the exit strategy. There is no portfolio-level cap on how many high-DTI borrowers a private lender can fund.

For property investors and business owners who find themselves on the wrong side of a bank's DTI allocation, private lending offers a genuine alternative. The assessment framework is fundamentally different. Explore our full range of services to see how we can help.

How Private Lenders Assess Risk Differently

Banks assess borrowers against standardised serviceability models designed for long-term, 25- to 30-year loan commitments. Private lenders operate on a different basis entirely, focusing on three core factors.

The first is security quality. The property offered as collateral is independently valued, and the lender assesses its location, type, and liquidity. The second is the loan-to-value ratio. Most private lenders cap their exposure at 65 to 75 per cent LVR. A first mortgage typically allows up to 65 per cent LVR, while a second mortgage may push combined LVR to approximately 75 per cent.

The third is exit strategy. Every private loan must have a clear, time-bound repayment plan. Common exits include refinancing to a bank, selling a property, or completing a development. This assessment model means a borrower with a DTI of eight times income could still be approved if the property is strong, the LVR is conservative, and the exit is credible.

Scenarios Where Private Lending Solves the APRA Problem

Bank Declines Due to Portfolio Limits

An experienced investor with three existing properties applies for a fourth acquisition. The bank confirms the borrower meets serviceability requirements, but declines the loan because the bank has reached its internal DTI allocation limit. A bridging loan through a private lender allows the investor to settle the purchase and refinance to a bank in six to twelve months. This type of short-term business loan is designed for exactly this scenario.

Trust and Company Structures Restricted by Banks

Several major lenders including Macquarie, CBA, and ANZ have restricted or paused new lending to trusts and companies in response to compliance pressures. Private lenders routinely fund company and trust borrowers, assessing the transaction on its merits rather than applying blanket policy restrictions. A secured business loan can provide the structure these entities need.

Self-Employed Borrowers with Strong Assets but Complex Income

A business owner earning $400,000 per year through a company structure may show modest taxable income due to legitimate deductions. Their DTI ratio calculated on taxable income could exceed six times, triggering the bank's cap. A private lender assesses the property equity and exit strategy rather than relying solely on taxable income. In these situations, a no doc loan can be an effective option where full income verification is impractical.

What This Means for the Australian Property Market

The RBA's March 2026 Financial Stability Review noted that non-bank lenders continue to grow as a source of finance, now accounting for approximately 6 per cent of financial system assets. Private credit AUM reached approximately $234.5 billion in 2025. APRA's DTI cap is likely to accelerate this shift as banks tighten their allocation of high-DTI loans and more borrowers seek non-bank alternatives.

For borrowers, the practical takeaway is straightforward. If a bank declines your application because of DTI constraints, it does not mean the deal is unfundable. It means you need a lender with a different assessment framework. Borrowers across NSW and Sydney are particularly affected given higher property values relative to income.

How Innovate Funding Can Help

At Innovate Funding, we work with a curated panel of private lenders who assess deals based on property equity, LVR, and exit strategy. Our lending solutions include first mortgage loans for purchases and refinancing, second mortgage loans for accessing equity without disturbing existing bank facilities, and bridging finance for time-sensitive transactions.

We provide indicative terms within 24 to 48 hours and can settle most transactions within two to three weeks. For a full overview of how private lending works, visit our private lending Australia guide, or contact us to discuss your scenario.

Frequently Asked Questions

Does APRA's DTI cap apply to private lenders?

No. APRA's debt-to-income lending limits apply only to authorised deposit-taking institutions such as banks, credit unions, and building societies. Non-bank and private lenders are not subject to these restrictions and assess loans based on asset quality and exit strategy rather than DTI ratios.

Can I still get a property loan if my DTI exceeds six times income?

Yes. Private lenders assess loans primarily on property equity, LVR, and exit strategy. A high DTI ratio does not prevent approval if the security is strong and the repayment plan is credible.

What interest rates do private lenders charge compared to banks?

Private lending rates are higher than bank rates, reflecting speed, flexibility, and access. First mortgage rates typically start from 8.75 per cent per annum, while second mortgage rates range from 1.0 to 2.0 per cent per month.

How fast can a private lender approve and settle a loan?

Most private lending applications receive indicative terms within 24 to 48 hours. Settlement can occur within two to three weeks, compared to six to twelve weeks for standard bank applications.

Are private loans safe and regulated?

Business-purpose private loans are generally NCCP-exempt. However, reputable private lenders maintain responsible lending practices, conduct independent valuations, and require clear exit strategies on every transaction.

Will APRA introduce further lending restrictions?

APRA has indicated it may consider additional limits, including investor-specific restrictions, if macro-financial risks rise significantly or lending standards deteriorate. The current DTI cap is described as a guardrail rather than a binding constraint.