'Liar loans' are still a problem, and UBS thinks a credit crunch is now a rising risk for Australia

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  • A large share of Australian mortgages are still being approved based on false information, according to a survey by UBS of Australians who took out a home loan over the past year.
  • While the proportion of “liar loans” is still high, those containing false information has fallen noticeably since the start of Australia’s Banking Royal Commission.
  • UBS says that suggests lending standards are continuing to tighten, a process it expects will continue over the next year. It says this will contribute to further falls in home prices and raises the risk of “credit crunch” in Australia.

If the latest survey from UBS Australia’s evidence lab is correct, a large proportion of Australian mortgages are still being approved based on false information.

Yes, “liar loans”, as they have become known, are still prevalent in Australia, even with a noticeable tightening in lending standards over recent years.

“Across the entire 2018 Vintage we found only 68% of respondents stated their mortgage application was ‘completely factual and accurate’, said UBS, referring to the 1,008 Australians it surveyed who had taken out a mortgage over the past year.

“24% of respondents stated their application was ‘mostly factual and accurate’, 7% were only ‘partially factual and accurate’, and 1% ‘would rather not say’.”


Of those loans that were not completely factual, 33% of respondents said they underrepresented their living costs, while 20% said underrepresented their other financial obligations. 13% overstated their income levels while 15% overstated just how many assets they owned.

All were around the same levels reported in prior years, although underestimating living expenses has increased noticeably over the past four years.

Despite all the talk of tighter lending standards, at least based on the responses received this year, it might seem at first that nothing much has changed.

But not quite.

While the share of factual loans was much the same as previous years, and not statistically significant to any degree, UBS found that since the start of Australia’s Banking Royal Commission, the percentage of applications with false information fell significantly.

“In the final quarter of the survey between April and July, there was a statistically significant increase in mortgage accuracy,” it said.

“During the quarter a record 76% of respondents stated they were ‘completely factual and accurate’, up sharply from 65% in the prior three quarters.”

Corresponding with the sharp increase in the proportion of entirely factual loans, a larger share of respondents also said that process in obtaining a loan had become more difficult.

“There was a statistically significant rise in respondents stating the application process was ‘much more difficult’ than previous experiences and they required ‘much more’ documentation and verification,” UBS said, adding that mortgages taking more than four weeks to be approved rose from 7% to 12%.

It said this was most apparent from April onwards, and “heavily skewed to the broker channel, albeit off a lower base”.


Based on the survey responses received before and after April, UBS says the data suggests there’s been a “tangible tightening in mortgage underwriting standards since the beginning of the Royal Commission”.

“This is contrary to recent comments from regulators that the ‘heavy lifting on lending standards is largely done’, UBS said, referring to a speech from APRA Chairman Wayne Byres in July this year.

“Most banks are yet to fully verify customers’ living expenses and a large number of customers still not providing pay slips and tax returns.

“As a result we believe there is likely to be much work required for the banks to comply with the Royal Commission’s likely more rigorous interpretation of Responsible Lending and improve mortgage underwriting standards.

“We expect this is likely to play out over the next twelve months.”

Given that backdrop, UBS says the odds of a “credit crunch” over the next two years has increased.

“The risks are rising,” it says.

The survey was conducted between July 11 to August 7. Based on the total sample size UBS says the findings have a potential sampling error of +/-3.01% at a 95% confidence level.

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