- Australians are increasingly exaggerating their incomes and downplaying their expenses in order to get approved for mortgages, the latest UBS survey reveals.
- The percentage of so-called “liar loans” rose to 37% of applicants, up from 32% the year prior, according to UBS.
- Troublingly, the largest cohort of liars were those who had previously been denied finance multiple times, raising questions of their creditworthiness.
If at first you can’t get finance, lie and lie again.
That’s the attitude Australians are increasingly adopting when it comes to circumventing lending restrictions it appears with more than one in three bending the truth, according to the latest UBS survey. Of 903 people who took out a mortgage in the last financial year, 37% knowingly misrepresented their finances to their lender, well up from previous years.
“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. We had expected this to lead to an increase in the accuracy of mortgage applications. Unfortunately, this was not the case,” UBS analysts Jonathan Mott, Minh Pham and Karyn Cao said in the research note provided to Business Insider Australia.
Instead, the extra scrutiny saw the number of so-called ‘liar loan’ applications jumped from 32% the year prior, as applicants admitted to a record number of fibs. UBS has previously stated it believes there could be as much as $500 billion worth of liar loansissued in Australia.
Of those surveyed, more than a third deliberately deceived when asked about their cost of living. Nearly one quarter understated their debts and the same proportion lied multiple times throughout their application, while one in five amplified their income.
It wasn’t just the number of applicants lying that grew — their exaggerations are also growing worse. Those who lied to lenders about their income inflated it by an average of 17% — up from 12% in 2018. UBS said the growing deception could demonstrate two things.
“This could imply either selection bias [where] more ‘honest’ customers may be being rejected in a shrinking mortgage market [or] resilience -– where other mortgagors may now be prepared to ‘embellish’ their application to get their loan approved,” it noted.
Tellingly, there are some factors that increase the likelihood you’ll mislead a lender.
Mortgagors who had bought multiple properties in the year accounted for 63% of false applications for example while nearly half of all liars owned more than one investment property.
Troublingly, more than three in four had had their mortgage already rejected, suggesting an unhealthy number were content acquiring finance that they probably shouldn’t have been granted. Troublingly, if the survey’s results are representative of the whole mortgage market, it would suggest that more than one-quarter of loans last year were granted to those previously rejected — a major problem if those same mortgagors begin defaulting on their repayments.
“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. We believe the regulators and lenders may need to consider, one, moving away from asking questions to analysing data as Comprehensive Credit Reporting and Open Banking are rolled out [and] two, adopting more rigorous Debt-to-Income limits in the interim,” UBS said.
With lending restrictions intended to make lending more robust, not less, it spells out a major shortcoming of the credit market.
As economists warn of a potential bubble, that could have serious implications for the Australian housing market.
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