Qualifying Ratios Explained: What Australian Borrowers Need to Know in 2025

Whether you’re eyeing a first home, a new car, or expanding your business, understanding qualifying ratios could make or break your loan approval. With lenders tightening their criteria in 2025, knowing how these ratios work—and how you can improve yours—has never been more important for Australians navigating today’s credit environment.

What Are Qualifying Ratios?

Qualifying ratios are financial metrics lenders use to determine if you can realistically afford a loan. The two main types in Australia are:

• Debt-to-Income Ratio (DTI): Compares your total monthly debt payments to your gross monthly income. Most major lenders in 2025 are capping DTI at 6 to 7, meaning your total debts shouldn’t exceed six to seven times your annual income.
• Housing Expense Ratio: Measures your proposed home loan repayments (including interest, principal, insurance, and rates) as a percentage of your gross income. The acceptable limit is typically around 30% in Australia, but this can vary by lender and loan type.

These ratios help banks and non-bank lenders avoid risky loans and ensure borrowers aren’t overextending themselves—especially in a high-rate, post-COVID market.

2025 Policy Updates: Stricter Caps and New Calculations

2025 has brought notable changes in how lenders apply qualifying ratios. The Australian Prudential Regulation Authority (APRA) is maintaining its focus on responsible lending, and in some cases, tightening expectations further:

• DTI Crackdown: As property prices rise, APRA has advised lenders to scrutinise loans with DTIs above 6. Many banks, including the big four, now require stronger supporting evidence for high DTI borrowers or simply decline these applications outright.
• Living Expense Benchmarks: Lenders now apply more granular household expenditure measures (HEMs), reflecting cost-of-living pressures in 2025. This means your spending is more closely examined to ensure you’re not underestimating expenses.
• Interest Rate Buffers: Most lenders still apply a 3% buffer above the actual loan rate to your repayments when calculating qualifying ratios, ensuring you can afford potential future rate hikes.

Example: If you earn $100,000 per year and have $30,000 in existing annual debt repayments, your DTI would be 0.3. If you’re applying for a $600,000 mortgage, your new DTI (including the mortgage) would be 6.3—right on the edge of most banks’ current limits.

Strategies to Improve Your Qualifying Ratios

If your ratios are too high, you risk rejection or a smaller loan amount. Here are some actionable ways to boost your profile:

• Pay Down Existing Debt: Reducing credit card balances, personal loans, or car finance directly lowers your DTI and frees up borrowing capacity.
• Increase Your Income: Overtime, side gigs, or rental income can improve your ratios—just be sure your lender will accept these sources as part of your assessable income.
• Consolidate Debts: Refinancing or consolidating multiple loans into a single, lower-payment facility can dramatically improve your qualifying ratios.
• Adjust Loan Amount or Term: Reducing your loan size or extending the repayment term can decrease your monthly obligations, lowering your housing expense ratio.

Keep in mind that lenders will also scrutinise your overall financial behaviour—so closing unused credit cards and keeping your spending in check can help tip the scales in your favour.

Why Qualifying Ratios Matter More Than Ever in 2025

With rising interest rates and tighter credit conditions, Australian lenders are more risk-averse than ever. Qualifying ratios are no longer a box-ticking exercise: they are the frontline filter for who gets approved and who misses out. This year, we’ve seen more borrowers knocked back—not due to bad credit, but simply because their ratios don’t stack up under the latest rules.

Real-World Example: Consider a Sydney couple with a combined income of $150,000, $20,000 in car loans, and $10,000 in credit card limits. Applying for an $800,000 mortgage, their DTI sits just under 6.5. In 2024, some lenders might have approved them. In 2025, several major banks would likely say no, or demand a much larger deposit.

Staying informed and proactive is the best way to ensure your loan application survives the qualifying ratios test.