Australia’s housing market is firing on all cylinders, but regulators are warning that the acceleration may have a downside. Home prices are climbing at their fastest pace in nearly four years, and lending to property investors is rising at a rate not seen in a decade. The Australian Prudential Regulation Authority (APRA) is now urging banks to monitor risk closely, and suggesting macroprudential measures could be on the table to prevent excessive leverage.
Investor Lending On The Rise
Data from the Reserve Bank shows that investor home loans climbed 0.77% in September, marking the highest monthly increase since June 2015. Over the past 12 months, mortgage lending to investors has risen 6.7% to $766.7 billion, outpacing owner-occupier mortgage growth of 5.8%.
Investors now account for 38% of all mortgages, above the historical average of 33%, a level not seen since 2015, when APRA first introduced macroprudential caps to cool investor lending.
According to APRA, these trends historically coincide with higher household leverage, riskier lending, and rising house prices, particularly in markets where supply is struggling to meet demand.
Macroprudential Tools For APRA
With investor lending climbing and property prices hitting record highs, APRA has signalled that banks may need to consider limits on new investor and interest-only loans.
The regulator has flagged that “macroprudential” measures could include:
- Caps on investor lending growth
- Limits on high debt-to-income lending
- Restrictions on interest-only loans
APRA is engaging with banks to ensure any policy action is carefully calibrated to manage risk while maintaining market stability.
Housing Prices Grow. But Supply Falls Short
Nationally, house prices have risen for a record 11 consecutive quarters, the longest continuous growth streak since 2015. In the September quarter, growth hit 7.2% annually across combined capital cities, the fastest pace in nearly four years.
Price growth has been particularly strong in:
- Brisbane: +10.8%
- Adelaide: +11.1%
- Perth: +10.8%
Sydney (+6.3%) and Melbourne (+6.2%) have also recorded solid gains.
The driving force? Supply remains well below demand, with available properties for sale sitting 18% below average, pushing prices higher in lower- to middle-priced segments.
Investors Move To New Opportunities
Historically, investors have concentrated on high-yielding markets, but as prices surge in WA, QLD, and SA, attention is shifting to Victoria. Analysts suggest Victoria’s property market has been undervalued and underperforming, creating fresh opportunities for capital growth.
Domain research chief Nicola Powell explained:
“Investors are looking to get ahead of first-home buyers and enter markets with potential for price gains. Victoria is now attracting renewed interest as it offers both value and upside.”
The Driving Force
Several factors are contributing to the investor lending boom:
- RBA rate cuts: Three reductions in 2025 improved affordability for investors.
- Government incentives: Expanded home guarantee schemes are bringing new buyers to the market.
- Rising house prices: Increasing equity and investor confidence.
- Bank lending practices: Some lenders are using rental appraisal income or assuming lower living costs, effectively boosting borrowing capacity.
For analysts, this has created conditions where investors may be willing to pay a 0.25% premium in interest rate to increase their leverage. HSBC chief economist Paul Bloxham warned that underlying inflation of 3% could prompt the RBA to adopt a more hawkish stance, potentially slowing the trajectory of investor activity.
Key Takeaways
The message from regulators is clear. The housing market is hot, but there are limits to how far investor lending can safely climb. For buyers, lenders, and investors, careful navigation will be key as the market continues to surge.
