Global Context: A Pre-emptive Strike

In a decisive move to mitigate growing financial risks, the Australian Prudential Regulation Authority (APRA) on Thursday, 27 November 2025, announced new restrictions on high-risk mortgage lending. Effective from Saturday, 1 February 2026, Australian banks will be subject to a 20% cap on the share of new home loans that exceed six times a borrower’s income. This policy, known as a debt-to-income (DTI) limit, is a pre-emptive strike against the excesses of an overheated property market characterised by soaring prices and a dramatic surge in borrowing by property investors.

APRA Chair John Lonsdale stated the intervention was necessary to contain a potential build-up of housing-related vulnerabilities. “APRA is not prepared to wait for housing-related vulnerabilities to build up before acting,” Lonsdale said in a statement. He specified that the primary signs of risk are concentrated in high DTI lending, particularly to investors, who typically borrow at higher ratios than owner-occupiers. The Australian Treasurer, Jim Chalmers, endorsed the move, stating it would “help with financial resilience and housing affordability.”

The regulator's action comes after a significant acceleration in credit growth. According to the Australian Bureau of Statistics, new housing lending jumped 9.6% in the third quarter of 2025, with lending to investors surging by 17.6% in the same period. Some reports indicate investors now account for as much as 40% of all new mortgages.

The Kenyan Mirror: A Different Reality

While Australia's challenge is managing excess, the situation in Kenya presents a stark contrast, focusing on expanding access to credit amidst a severe housing deficit. According to the most recent Residential Market Survey from the Central Bank of Kenya (CBK), released in August 2025, the country has just 30,016 active mortgage accounts. This is in a nation with a growing urban population and an estimated annual housing demand of 250,000 units against a supply of only 50,000.

The total value of outstanding mortgages in Kenya grew by a modest 3.3% to KSh279.3 billion in 2024. However, the market faces significant headwinds. The average mortgage interest rate stood at a high of 14.9% in 2024, with 85.9% of these loans on variable rates, exposing borrowers to market volatility. Compounding the issue is a rising level of financial distress; non-performing mortgage loans (NPLs) climbed to 16.5% of the total mortgage book in 2024, up from 14.4% the previous year. This figure is slightly below the overall banking sector's NPL ratio of 17.6% as of June 2025.

A survey of built environment professionals identified the high cost of finance as the single biggest challenge facing the housing sector in Kenya, followed by the high cost of building materials and land.

Regulatory Divergence: Managing Risk vs. Fostering Growth

The policy tools employed by APRA and the CBK reflect their differing market realities. APRA's new DTI cap is a macroprudential tool designed to cool a specific area of high-risk lending without derailing the entire market. It complements existing measures like the serviceability buffer, which assesses a borrower's ability to repay their loan at a higher interest rate.

In Kenya, the CBK's prudential guidelines are geared more towards ensuring the foundational stability of a nascent mortgage market rather than curbing excessive lending. The CBK's primary regulatory tools, outlined in the Prudential Guidelines issued under the Banking Act, focus on capital adequacy, liquidity management, and corporate governance. For instance, a 2021 amendment to the Capital Adequacy Guideline lowered the risk weight for residential mortgages from 50% to 35%, a move designed to free up capital for banks to increase mortgage lending. The guidelines also stipulate that any portion of a loan exceeding 80% of the property's forced sale value must attract a higher risk weight of 100%, discouraging very high loan-to-value lending.

Unlike Australia's explicit cap on debt relative to income, the CBK's framework does not currently feature such a direct macroprudential limit. The focus remains on ensuring that the small number of existing mortgages are backed by sufficient capital and collateral, thereby protecting depositors and maintaining systemic stability.

Implications for Kenya

Australia's regulatory action, though distant, offers a crucial case study for Kenyan policymakers, regulators, and financial institutions. It highlights the importance of forward-looking, pre-emptive regulation in property markets. As Kenya pursues its affordable housing agenda, which aims to deliver 200,000 units annually, the demand for housing finance is expected to grow.

While the immediate challenge is to increase the number of mortgages from the current low base, the Australian experience serves as a reminder of the risks that can accumulate when credit growth accelerates rapidly. For Kenya, the key takeaway is the need to develop a robust macroprudential toolkit that can be deployed as the market matures. This could eventually include measures like DTI or loan-to-value limits, tailored to the local context, to ensure that future growth in housing finance is sustainable and does not create a household debt crisis or a property bubble. The Australian intervention underscores that financial stability and housing affordability are two sides of the same coin, a lesson of global relevance.