A hedge fund manager posing as a Sydney home buyer says he was shown how to trick banks on mortgage applications

Photo: Ian Waldie/ Getty Images.

There’s much speculation about whether there’s a housing bubble in Sydney.

To test the theory, John Hempton of Bronte Capital, and Jonathan Tepper, an economist and founder of Variant Perception, posed as home buyers and toured Sydney’s western suburbs viewing housing developments and meeting mortgage brokers.

In an article in The Australian Financial Review, the men claim to have uncovered some major structural flaws in Sydney’s housing market.

Here are a few of them:

A lie on your loan application won’t get checked

Mortgage brokers told them to lie on loan application documents about the deposit for a house and about income because the banks don’t check.

“We asked if the bank would call our employer, and both reputable and disreputable brokers said banks rarely verified payslip,” Tepper said, adding that the process was often carried out by Indian call centres.

If you’re a low-income earner you could get a discount

On loan applications low-income earners are often offered discounts on the advertised mortgage rate of up to a 1%, they said .

“The banks have always said their underwriting is of high quality,” says Hempton. “We just went around and this was not the story we were told. We were coached on how to get things through banks.”

Make money on your existing property by getting revaluations

The men also met many investors who were able to get revaluations on their properties to increase their equity for speculative purposes.

“We met one who was able to do this 20 times in a year with their property portfolio.”

Know which banks are willing to change their valuations

Mortgage brokers may tell you which of the big four banks will revalue property quickly.

The men said they do this because brokers want to get you into lots of apartments.

“The only way they could do that was getting the bank to revalue the property so you could borrow more money. They were acute about which banks had bad practices.”

There are huge amounts of houses on the market

Hempton goes as far as to say that there is currently a glut of property in western Sydney.

“Go drive around western Sydney at the moment. It was pretty obvious to us there was a lot of unsold inventory,” he said.

Sold doesn’t necessarily mean sold

Developers sometimes lie about units and houses being sold.

While visiting western Sydney the men went into a building in Parramatta where all the apartments were marked as sold.

“You say, ‘I really want the one on the north-east side’ and suddenly one will be unsold,” they said.

The AFR has more.

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