Connective’s New White Label Assesses at a 2% Buffer. APS 220 Holds the Banks to 3% — and RG 273 Puts the Difference on Your File

On Monday 28 September, Connective’s new white label range with non-bank lender Athena went live. Trade reporting of the launch puts its headline settings at a 2 per cent servicing buffer, up to 95 per cent of rental income in eligible scenarios, and lending to 85 per cent LVR without lenders mortgage insurance on its Prime Max product.

On Tuesday 29 September, the RBA’s Monetary Policy Board took the cash rate target up 25 basis points to 4.60 per cent — the fourth increase this year, following what the Board’s own statement describes as “the three increases in the cash rate target since the beginning of the year.” The decision was unanimous, and the statement left the door open: the Board “will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed.”

Put those together and you have the defining placement problem of the next six months. Every rate rise compresses capacity at the banks, where APRA’s prudential framework sets the floor on how generously a loan can be assessed. Meanwhile the products that can assess more generously sit outside that framework — lawfully, deliberately, and increasingly prominently on your panel.

That is not a scandal. It is arithmetic. But it moves a decision onto the broker’s desk that used to be made for them by the fact that every lender assessed roughly the same way. And under the best interests duty, the reasoning behind that decision has to live somewhere on your file.

What actually launched

According to Broker Daily’s lender policy round-up for 18–25 September and Mortgage Professional Australia’s report of the announcement, Connective Athena launched with:

• Prime Max — lending up to 85 per cent LVR without LMI
• Lite Doc for self-employed borrowers
• Lending to eligible non-trading company and trust structures
• Bridging finance
• A 2 per cent servicing buffer
• Up to 95 per cent of rental income accepted in eligible scenarios
• Flexible treatment of bonus and overtime income

Michael Goerner, Head of Connective Lending, framed the range around capacity and complexity. “Connective Athena adds more options for clients who need greater borrowing power, have more complex income or structures, need to move quickly or want greater flexibility,” he said. Nathan Walsh, CEO and Co-founder of Athena, said the product was built “around real conversations with brokers about the scenarios they’re solving for every day, not around what was easiest for us to build.”

Those figures come from trade reporting rather than a release we could read directly, so treat them as reported settings and confirm the current numbers in the product guide before you rely on them in a submission. The structural point below does not depend on the precise figure.

Why a 2 per cent buffer is available at all

This is the part worth understanding properly, because brokers are often told “non-banks are more flexible” without anyone explaining the mechanism.

APRA’s Prudential Practice Guide APG 223 Residential Mortgage Lending states the requirement plainly: “Under Attachment C of Prudential Standard APS 220 Credit Risk Management, ADI’s must apply a buffer over a loan’s interest rate of at least 3.0 per cent, unless determined otherwise by APRA.”

Note the subject of that sentence. APS 220 applies to authorised deposit-taking institutions — banks, mutuals and credit unions. Athena is a non-bank lender, not an ADI, so APRA’s prudential standards do not bind it. Non-bank lenders are regulated through the National Consumer Credit Protection Act and ASIC’s responsible lending framework, which requires an assessment that the credit is not unsuitable, but does not prescribe a serviceability buffer at all.

So the 3 per cent figure is not an industry-wide rule that one lender has chosen to ignore. It is a prudential requirement on a specific category of lender, and a lender outside that category was never subject to it. The gap between 2 and 3 is a regulatory perimeter, not a race to the bottom.

APRA confirmed on 28 May 2026 that the serviceability buffer stays at 3 percentage points, alongside a countercyclical capital buffer of 1 per cent of risk-weighted assets. Nothing about the September rate decision changes that.

The second lever, which nobody is naming

The buffer gets the attention. The rental income treatment may matter more for the clients you are actually struggling to place.

APG 223 sets out APRA’s view on investment income: “In APRA’s view, prudent serviceability policies incorporate a minimum haircut of 20 per cent on expected rental income, with larger haircuts appropriate for properties where there is a higher risk of non-occupancy.”

A product accepting up to 95 per cent of rental income is applying a 5 per cent haircut. On a portfolio investor with three tenanted properties, the difference between a 20 per cent haircut and a 5 per cent haircut compounds across every property in the assessment — and it does so on the income side, where it is not softened by the buffer at all. For an investor client who is servicing-constrained rather than deposit-constrained, that treatment is likely to move the outcome further than the buffer does.

Worth stressing: APG 223 is a practice guide, and APRA is explicit that practice guides “do not themselves create enforceable requirements.” The 20 per cent rental haircut is APRA’s stated expectation of prudent practice for the institutions it regulates. The buffer, by contrast, is a requirement written into APS 220. Two different kinds of instrument, two different weights — and a useful distinction to have straight before you describe either one to a client.

The constraint that makes this bite: the DTI cap

The reason this matters more in late 2026 than it would have in 2024 is that the banks picked up a second binding constraint at the start of this year.

On 27 November 2025, APRA announced a debt-to-income lending limit, effective 1 February 2026. From that date, ADIs may write up to 20 per cent of their new mortgage lending at a debt-to-income ratio of six times income or more. The limit applies separately to owner-occupier and investor lending, and it excludes bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings. APRA noted “some proportionate treatment for smaller ADIs.”

APRA Chair John Lonsdale was direct about the target: “By activating a DTI limit now, APRA aims to pre-emptively contain risks building up from this type of lending and strengthen banking and household sector resilience.” The release also flagged that “we will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards.”

APRA was clear at the time that the limit was not binding in aggregate and was not expected to have a near-term effect on access to credit, with only a small number of ADIs expected to sit near the cap for high-DTI investor lending. But a cap that is not binding in aggregate can still be binding at the particular bank, in the particular month, on the particular deal you are trying to place — and you generally will not be told that is why. It shows up as a decline or a trimmed approval with no obvious policy reason behind it.

Which brings us to the RBA’s own description of the market. The Board’s statement noted that “housing prices have fallen in most capital cities and new housing loans have declined noticeably,” and that there are “uncertainties about the economic effects of the downturn in the housing market.” So: falling prices, falling loan volumes, a rising cash rate, a 3 per cent buffer, and a 20 per cent DTI cap on the ADI side. Every one of those pushes the same direction on a bank’s assessment, and none of them applies to a non-bank funder in the same way.

What the best interests duty actually asks of you here

This is where it gets uncomfortable, and where a lot of file notes are going to be thin.

ASIC’s Regulatory Guide 273 Mortgage brokers: Best interests duty says the quiet part out loud at RG 273.51: “we generally expect the cost of a credit product—such as interest rate, fees and charges and the size of repayments—to be a factor that mortgage brokers should prioritise.”

And then RG 273.54: “A failure to consider cost and investigate the lowest cost options available to the consumer may suggest non-compliance with the best interests duty. Any situation where a higher cost loan is recommended will need to be supported by evidence demonstrating why that recommendation is in the consumer’s best interests.”

RG 273.55 goes further: suggesting a consumer apply for a loan “when there is another, cheaper loan you could recommend that would meet their non-cost needs and objectives—is unlikely to be in the consumer’s best interests.”

Read those three paragraphs alongside the launch above. If a client can be approved at two lenders and you place them at the one whose assessment settings you found more convenient, cost is the question you have to be able to answer. If a client can only be approved at one lender because of its assessment settings, that is a different situation entirely — and RG 273 explicitly contemplates it. RG 273.73 lists “the credit policy and risk appetite of the credit provider” among the factors a broker could properly take into account.

The bridge between those two situations is evidence. RG 273.75 requires that where a product is recommended on a non-cost basis, “you should be able to make an overall assessment that the non-cost consideration has a realistic possibility of offering that individual consumer greater value.” RG 273.77, on prioritising speed over cost, adds: “we expect that any claims of this nature you make will be evidence-based and able to be substantiated.”

And RG 273.78 is the one to pin above the desk: “there is an increased risk that you are not complying with the best interests duty if your processes typically lead to a ‘one-size-fits-all’ outcome for consumers.” A broker who starts sending every servicing-tight file to the same non-bank product, in the same way, without the file showing why each client’s circumstances led there, has built exactly the process ASIC describes.

None of this is legal advice, and the application of RG 273 to any particular file is a matter for your licensee. But the direction of it is not ambiguous.

What to review this week

Five things, and none of them takes long.

1. Re-run your live pre-approvals at 4.60 per cent. Any assessment produced before Tuesday was built on a lower cash rate. Your clients will hear the headline before they hear from you, and the ones with a finance clause are the ones to call first.
2. Separate “capacity-constrained” from “policy-constrained” in your pipeline. A file that fails on serviceability at a bank may clear at a non-bank on buffer or rental treatment. A file that fails on credit history, security type or document quality will not, and sending it there wastes everyone’s time.
3. Write the cost comparison down, not just the capacity one. Where a client is placed on a product because of its assessment settings, the file should show what the cheaper alternative was, whether it could actually have approved the loan, and what the difference costs the client over the period they expect to hold it. RG 273.54 is the reason.
4. Check the DTI on your investor files before you submit. If total debt sits at six times income or more, you are competing for a capped share of an ADI’s book. It may be fine; it may also be why a deal that looks clean gets trimmed. Ask the BDM about appetite before you lodge, not after.
5. Confirm the assessment settings yourself. Reported launch figures move. Get the buffer, the rental treatment and the LVR/LMI thresholds from the current product guide or the BDM in writing, and keep it with the file.

What to watch next

Three things worth tracking through the December quarter.

The first is APRA’s response if capacity-constrained lending keeps migrating outside the ADI perimeter. APRA’s own release flagged that it would “consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards.” Its powers run to the institutions it regulates — which includes the banks that provide warehouse funding to non-bank lenders. That is an indirect channel rather than a direct one, and it is worth watching precisely because it is indirect.

The second is fixed rates. Broker Daily’s round-up for the same week recorded Ubank lifting Flex fixed rates by 25 to 30 basis points effective 24 September, and ING reshuffling variable rates on 23 September — up 5 basis points for owner-occupier P&I to 80 per cent LVR, down 5 for the 80.01–95 per cent band, and down 10 for investor lending between 80.01 and 90 per cent LVR. Lenders are repricing by segment now, not across the board, which means “the market moved” is no longer a useful thing to tell a client.

The third is the RBA itself. The Board said it would be “attentive to the data” and explicitly kept further increases on the table. If your client conversation still rests on a cut arriving soon, it needs updating.

The takeaway

The capacity that four rate rises took out of the market this year is partly being handed back — but through a door that only some lenders can open, for structural reasons that have nothing to do with how competitive they are feeling. That is a legitimate and useful tool. It is also a decision point that did not exist when every lender assessed a file roughly the same way.

The buffer is the lender’s setting. The rental haircut is the lender’s setting. The DTI cap is APRA’s. The reason this client ended up at this lender is yours, and it is the only part of the chain that gets tested against RG 273. Write it down while the reasoning is still fresh.