On 23 July 2025, the Australian Prudential Regulation Authority (APRA) announced that it had decided to keep its macroprudential policy settings unchanged to maintain financial stability, citing sound lending standards and low non-performing loans, while monitoring risks from high household debt and elevated risk of economic shocks caused by an uncertain geopolitical environment.
Retaining current prudential settings
APRA confirmed that it will retain its current macroprudential policy settings following a review of domestic and international financial conditions and risks. APRA stated that the mortgage serviceability buffer will remain at 3 percentage points and the countercyclical capital buffer will stay at its default level of 1 per cent of risk-weighted assets. These settings are intended to mitigate system-wide financial stability risks and ensure that credit continues to flow to households and businesses. APRA noted that lending standards remain sound, and recent declines in inflation and interest rates have eased financial pressures on borrowers and increased borrowing capacity for new borrowers. However, APRA highlighted that high household debt remains a key vulnerability in the financial system, especially given the system’s exposure to residential mortgages.
Reasons
APRA’s decision to maintain current settings was influenced by several factors: (i) high levels of household debt and above-average total credit growth, which is expected to rise further as interest rates decline; (ii) lower inflation and interest rates, which have eased financial pressures on borrowers; (iii) tight labour market conditions; and (iv) the risk of economic shocks from an uncertain geopolitical environment. APRA also noted that the current level of the countercyclical capital buffer has not been restrictive on new credit to the household sector.
Future engagement with regulated entities
In 2022, APRA updated its prudential standard on credit risk to require banks to be pre-positioned to implement a range of credit-based macroprudential measures, if needed, to address risks to financial stability. To ensure readiness for potential future risks, APRA will begin engaging with regulated entities on the implementation of additional macroprudential tools. As well as the serviceability buffer, these tools include limits on new high debt-to-income lending, or limits on new investor or interest-only loans.