Total Debt Service Ratio in Australia: What Borrowers Need to Know in 2025

With the Australian lending landscape evolving rapidly, understanding your Total Debt Service Ratio (TDSR) is more crucial than ever. Whether you’re eyeing your first home, refinancing, or managing business loans, TDSR is the critical number lenders use to assess your ability to meet debt obligations. In 2025, with regulators tightening oversight and cost-of-living pressures biting, borrowers who know how to manage their TDSR stand out from the crowd.

What Is the Total Debt Service Ratio (TDSR)?

The TDSR measures the proportion of your gross monthly income used to cover all debt repayments—including mortgages, car loans, credit cards, and personal loans. It’s a broader gauge than the basic debt-to-income ratio, giving lenders a holistic view of your financial commitments. For Australians, this metric is front and centre when applying for significant credit—especially in a market where regulatory scrutiny has only intensified post-2023.

• Formula: TDSR = (Total monthly debt repayments ÷ Gross monthly income) × 100
• Includes: Mortgage repayments, car and personal loan repayments, credit card minimum payments, and other regular debt obligations.
• Excludes: Daily living expenses, taxes, and insurance premiums.

Example: If you earn $8,000 per month (before tax) and your total debt repayments are $2,400 per month, your TDSR is 30%.

2025 Updates: TDSR and Lending Policy in Australia

In response to economic volatility and rising household debt, APRA (Australian Prudential Regulation Authority) and ASIC have updated lending guidance for 2025. Major banks and non-bank lenders are now more closely monitoring TDSR thresholds, not just for home loans but for all significant lending products.

• Recommended TDSR cap: Most lenders prefer a TDSR below 40%, but in 2025, some are setting stricter internal limits at 35% for higher-risk applicants.
• Stress testing: Lenders now routinely assess borrowers’ ability to service debts with interest rates 3% higher than current rates, reflecting ongoing RBA tightening cycles.
• Business lending: SME applicants face enhanced TDSR checks, as regulators crack down on over-leveraging in the commercial sector.

Policy changes mean more scrutiny for borrowers with multiple loans or fluctuating income. Lenders are also factoring in buy-now-pay-later (BNPL) obligations and ‘afterpay-style’ products in the TDSR calculation, a shift from previous years.

Why TDSR Matters for Australian Borrowers

Understanding your TDSR isn’t just about satisfying the bank’s risk models—it’s about protecting your own financial wellbeing. Here’s why it matters in 2025:

• Loan approval odds: A lower TDSR increases your chances of approval and can unlock better interest rates.
• Financial resilience: Keeping TDSR low helps you weather unexpected expenses or income drops.
• Long-term flexibility: If your TDSR is high, you may struggle to access additional credit for investments, renovations, or emergencies.

For instance, a Sydney couple with a $650,000 mortgage and $30,000 in car and personal loans might find their TDSR creeping above 40%. If they apply for another loan, they may hit a wall—even with solid credit scores. By paying down smaller debts or refinancing to lower rates, they can bring their TDSR into a safer range and regain borrowing flexibility.

How to Improve Your TDSR in 2025

If your TDSR is on the high side, proactive management is key. Here are practical steps for Australians looking to improve their borrowing profile:

1. Pay down high-interest debts first—credit cards and unsecured loans eat up your monthly obligations and inflate your TDSR.
2. Consolidate where possible: Rolling multiple debts into a single, lower-rate loan can reduce monthly repayments.
3. Boost your income: Even a modest side hustle or overtime can shift the TDSR equation in your favour.
4. Review BNPL and short-term credit usage: These are now factored into most lenders’ TDSR assessments.
5. Refinance for better terms: In a competitive lending market, shopping around can yield savings that improve your TDSR.

Regularly checking your TDSR—especially before applying for new credit—puts you in the driver’s seat. Many Australian lenders and fintechs now offer online calculators to give you a quick snapshot of your ratio before you apply.

The Bottom Line

With stricter lending rules and rising rates, the Total Debt Service Ratio is set to be a defining metric for Australian borrowers in 2025. By understanding how it works, tracking your own ratio, and making smart debt decisions, you can improve your financial position and unlock better borrowing opportunities. In today’s market, a healthy TDSR isn’t just a number—it’s your ticket to financial freedom.