Professor Philip Lane:

What is at issue is one's track record of paying rent or good credit standards, for example, such as one's ability to repay a car loan. It will be easier to keep track of the situation when the central credit register is up and running as it will provide a fuller picture of the credit quality, if one likes, of an individual or couple. I imagine that banks would value that evidence in terms of the reliability of a given couple to make repayments. Rents, such as the examples Deputy McGrath gave, are especially relevant for loan-to-income ratios in the sense that if one demonstrates that one can sustainably pay whatever rent out of a given income, that is relevant in terms of the loan-to-income ratio more than the loan-to-value ratio. When we review the rules later in the year and issues relating to measures on what is a sustainable level of debt of a mortgage loan relative to income, we can definitely look at what Deputy McGrath said about the evidence coming from people's track record in paying rent as part of it.

It sounds sensible that a track record of paying rent would be relevant when approving a mortgage. Having said that, taking out a loan to buy a house is fundamentally different from renting in terms of commitment, namely, there is a quite irreversible commitment to manage a loan. The concept of having loan-to-income ratios or related ratios, such as debt-to-income and so on, is because it is fundamentally different from renting in the sense of allowing for the fact that over a 20-year or a 30-year mortgage, one has to allow considerable margin in terms of shocks to income levels and employment.

In line with elsewhere, we have been careful to allow some margin. I agree it is a 15% margin in terms of the mortgage value. Again, however, I imagine when banks are working out who can go over the thresholds, the track record on renting can help in that situation.