| 01.10,19. 06:17 AM |
'Liar loans' surge to record highs, despite mortgage lending crackdown: UBS report
Photo: A record number of borrowers admitted to providing misleading financial information. (ABC News: Stephanie Chalmers)
The number of home loan applicants obtaining a mortgage after inflating their income and downplaying their living costs has jumped to record levels, according to research by global investment bank UBS.
Thirty-seven per cent of borrowers were not entirely honest in their mortgage applications, the bank's anonymous survey of 903 Australians revealed — despite tougher lending standards imposed since the banking royal commission.
The surge in so-called "liar loans" comes amid a rise in property prices, rebounding auction clearance rates and the Reserve Bank's widely-expected interest rate cut on Tuesday.
It was a significant jump compared to last year, when UBS found that 32 per cent of borrowers fudged their income and expenses when the royal commission was in full swing.
That was an improvement over the 2017 result (at 36 per cent) and led to UBS surmising that borrowers were behaving more "honestly" as a result of the high-profile banking inquiry.
"Since the royal commission was announced, the banks have significantly increased their level of verification, more questions are asked and more documentation is being requested," UBS analyst Jonathan Mott said.
"We had expected this to lead to an increase in the accuracy of mortgage applications. Unfortunately, this was not the case."
Of the borrowers who admitted their application was not "completely factual or accurate", a record number had exaggerated how much they earn (20 per cent), understated their debts (23 per cent), under-reported their living expenses (34 per cent) and were dishonest in several of their answers (23 per cent).
Furthermore, 11 per cent of borrowers had inflated their income by 35 per cent, while a third had overstated it by up to 24 per cent.
UBS also found that Australia's big four banks had a major share of these dubious mortgage applications.
ANZ had the highest proportion of "liar loans", according to the survey — with 42 per cent of respondents who obtained a home loan through the bank admitting they were not entirely honest.
This was followed by the Commonwealth Bank (39 per cent), National Australia Bank (34 per cent) and Westpac (33 per cent).
Who's more likely to get a 'liar loan'?
The group which filed the most inaccurate information were those who had their mortgage applications rejected at least twice — with 76 per cent of people in this category admitting to stretching the truth.
It was followed by those who purchased more than one property in the past year (63 per cent), applied for interest-only loans (56 per cent), and needed a guarantor (53 per cent).
There was also a record level of "liar loan" applications from people who engaged the services of a mortgage broker.
Forty-eight per cent of respondents who dealt with a broker said they "suggested [we] over/under-represent elements of their application".
In addition, 49 per cent of applicants who owned two or more properties confessed to embellishing the information they provided, and 22 per cent who had missed a mortgage payment in the past year also did the same.
"While asking increasingly detailed questions appears prudent, it does not appear to be effective as many factually inaccurate mortgages are still working their way through the process," Mr Mott said.
Those sentiments were echoed by property analyst Martin North, who told The World Today: "Of course, as you go down into more detail [with questions], the chances of being inaccurate also increases."
"Essentially, you collect more information, but less good information.
Mr North also believes there is a risk that the lessons from the banking royal commission — on the need to lend responsibly — are quickly being forgotten.
"Well, I think we are actually laying another trap [and] we are building another property bubble.
"We have the highest-indebted households in the world.
"We have the highest home prices relative to income pretty much anywhere — we haven't learned the lesson."