Professor Philip Lane:

The Senator is bringing together different elements of this difficult situation. At the level of showing a consistent track record of paying significant rent, our view is that this is something the bank should be looking at in assessing the capacity of that individual couple to pay a mortgage. The question then is whether the rules should be different for that category. That is where we would say "No". It is still important to have a deposit because it protects the individual from negative equity risk. The deposit is, therefore, needed.

As to the loan-to-income issue, we still think it is necessary to have a relationship between the loan and income levels because we know from historical experience that when loans are too high relative to incomes today, it may be cheaper than paying the rent today or for the next two years or five years but, with the risk of a downturn, we may see a loss of income. The loss of employment is a bigger probability in a downturn. This brings us back to the data analysis behind our decisions. We know that loan by loan and experience by experience the loan-to-income ratio has been an important factor as to whether a person ends up in arrears and in a difficult position. This is a difficult situation and the key is to build more houses and, in turn, the price of housing coming down so that the rules that we think are important can be met, while still delivering the housing people need.