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This audio version covers: The New Build Loophole Why 2026 Will Be the Year of Construction Lending

The “New Build” Loophole: Why 2026 Will Be the Year of Construction Lending

Executive Summary: The Structural Shift of 2026

As the Australian mortgage broking industry prepares for APRA’s latest macroprudential intervention on February 1, 2026, the landscape of residential lending stands on the precipice of a fundamental structural realignment.

The headline regulation is restrictive: ADIs must limit new mortgage lending with a DTI ratio of 6.0 or higher to just 20% of quarterly flows. Yet, within the dense regulatory text lies a critical exemption: finance for the construction of new dwellings is explicitly exempt from these limits.

For brokers, this is the most powerful “pivot” tool available in 2026. This report dissects the regulatory mechanics and provides actionable frameworks for repositioning your broker business.

In This Report

Part 1: The Regulatory Landscape

To effectively leverage the “New Build” exemption, brokers must first possess a granular, forensic understanding of the constraints binding the rest of the market. The impending changes act as a stringent rationing mechanism that will fundamentally alter lender appetites for high-leverage debt.

The Mechanics of the DTI Cap

Effective February 1, 2026, APRA requires all ADIs to limit the flow of new residential mortgage lending with a DTI ratio of 6.0 or higher to 20 per cent of their total new quarterly mortgage lending.

  • Numerator (Total Debt): Includes credit limits of all debts (credit cards, HECS, personal loans), not just drawn balances.
  • Denominator (Gross Income): Gross annual income, with rental income often shaded by 10-20%.

A DTI of 6.0 implies that a borrower earning $100,000 gross per annum cannot hold total debt exceeding $600,000 without triggering the high-DTI classification. In capital cities where median values exceed $1 million, a 6x multiple is easily breached.

The “Rationing” Effect

ADIs will view the 20% cap as a ceiling to be avoided, likely setting internal risk appetites around 15-17%. Applications that fit policy on paper may be declined simply because the lender’s “high-DTI bucket” is full for the quarter.

Part 2: Decoding the Loophole (ARS 701.0)

The exemption relies on specific classifications found in Reporting Standard ARS 701.0. Brokers must ensure their deal structures align with these definitions to qualify.

Defined Exemptions (The Green Light)

  • Construction of New Dwellings: Erection of a new, self-contained structure. Includes house-and-land packages where the loan covers the construction phase.
  • Purchase of Newly Erected Dwellings: Purchase of a new dwelling on a previously undeveloped parcel, or the first sale of a new dwelling in a multi-unit building (off-the-plan).
  • Bridging Finance: Exempt for owner-occupiers, facilitating upsizers during the transition period.

The “Red Light” Exclusions

Renovations: Expenditure on alterations or additions to an existing dwelling does not qualify. A $300k renovation loan counts toward the DTI cap.
Existing Stock: Any dwelling that has been settled and occupied previously is “established” stock and is capped.

The “Knock-Down Rebuild” Nuance

If a client refinances an existing home loan to release equity for a KDR, the refinance portion is often classified as established debt. Only the new money for construction is automatically exempt. Brokers must clearly flag the construction component.

Part 3: Market Dynamics

Several economic vectors are aligning to make 2026 a resurgence year for construction.

Why Supply is Critical

By 2026, the cumulative effect of high migration and low building approvals will result in acute undersupply. Vacancy rates in Perth, Adelaide, and Brisbane are projected to remain at record lows, pushing rents (and yields) higher.

Furthermore, government policy continues to favor new supply. Schemes like “Help to Buy” and expanded First Home Guarantees are heavily skewed toward new builds, acting as a demand floor that de-risks projects for developers and investors.

Part 4: The Strategic Pivot

In 2026, the broker’s value proposition shifts from transaction facilitator to portfolio strategist. You must master the “Product Pivot.”

The Old Conversation

“Sorry, your DTI is too high. You can’t borrow any more until you pay down debt or increase income.”

The New Conversation (2026)

“Current regulations cap your borrowing for established houses because your debt ratio is above 6. However, APRA allows unlimited lending for new construction. If we pivot your strategy to a house-and-land package or a newly completed apartment, we can bypass this cap and secure approval at 7x DTI.”

Investor Avatar: The Accumulator

Scenario: Household income $250k. Existing Debt $1.4m. Current DTI 5.6x. Wants to buy $800k investment.

  • Established Property: New DTI > 8x. DECLINED (Hits the cap).
  • New Build: The new debt is exempt. Bank views it as adding supply. APPROVED.

Part 5: Operational Nuance

If the loan is misclassified at submission, the DTI filter will kill the deal automatically. Brokers must be operationally precise.

Loan Purpose Codes (LIXI Standards)

You must select “Investment – Purchase – Newly Erected” or “Construction”. Avoid generic “Investment – Purchase” codes which default to established stock. Check the “New/Established” flag in your CRM.

The Credit Memo: Your submission notes must explicitly state: “This application is for the purchase of a newly erected dwelling/construction. It is exempt from the APS 220 DTI limits as per ARS 701.0.” This forces a manual credit review if the automated system flags a DTI breach.

Part 6: Construction Finance Masterclass

Construction loans are drawn down in stages. Understanding the HIA Contract stages is vital for managing client cash flow.

Stage % of Contract Description
Deposit 5% Signing of contract.
Base/Slab 10-20% Foundation laid, plumbing rough-in.
Frame 15-20% Structural frame, roof trusses.
Lock-Up 35% External walls, windows, doors, roofing.
Fixing 20-25% Internal cladding, plastering.
Completion 10% Final finish, painting, appliances.

Broker Tip: Educate clients that they pay interest only on the drawn amount during construction. Ensure they have a cash buffer for the final payment, as banks often withhold the last drawdown until the Occupancy Certificate is received.

Part 7: Managing Risk & Partnerships

Builder Due Diligence

Brokers have a duty of care. Rigorous due diligence is the new “credit check.”

  • License Checks: Verify active licenses via state bodies (Fair Trading/VBA).
  • Insurance: Verify Home Warranty Insurance (DBI) is in place before deposit release.
  • Contracts: Always prefer Fixed Price contracts. Cost Plus contracts are generally not financed by residential lenders.

B2B Opportunity: Builder Partnerships

Builders are entering a market where many buyers will be rejected due to DTI caps. Position yourself as the “Construction Finance Expert” who can rescue these deals.

Compliance Note: Any referral fees received from builders must be fully disclosed in your Credit Proposal Disclosure (CPD). Best Interests Duty (BID) applies—the property must be suitable for the client.

The Strategic Advantage

2026 marks the end of “easy leverage” on established property, but the beginning of a new era of specialization. The “New Build” exemption is a powerful, legislated tool aligned with national economic priorities.

For the strategic broker, it transforms a “No” into a “Yes, but…” and opens a pipeline of business that generalist brokers will miss.

Download the 2026 Strategy Pack