Reserve Bank governor Philip Lowe has intervened in the debate over tax ahead of the May budget, blaming the tax arrangements for property investors as well as lax bank lending standards for the explosion in Sydney and Melbourne home prices.

In remarks addressed to a private dinner between Reserve Bank board members and the Melbourne business community to which television cameras had been invited, Governor Lowe said too many loans were being made "where the borrower has the skinniest of income buffers".

In some cases banks were "assuming that people can live more frugally than in practice they can", leaving little for them to live on if things went wrong.

Close to 40 per cent of housing loans (and 60 per cent of investment loans) were interest-only, not requiring the scheduled repayment "of even one dollar of principal at least in the first years of the life of the loan; only interest".