Of those borrowers who used a mortgage broker and admitted to misrepresenting their application, 54 percent said their broker suggested stretching the truth in some way. Of those borrowers who went directly through a bank, 62 percent said their banker suggested they lie.
And a staggering 81 percent of the 93 respondents who misreported their loans with ANZ Bank said their advisor advised them to do so.
ANZ has battled well-documented loan processing delays over the past year, and the survey results may reflect that. An ANZ spokesman said it remains confident in its verification processes, which have been strengthened more recently with the introduction of comprehensive credit reporting.
“After several years of similar external reports on the quality of applications, our delinquency rates have gone down, not up,” the spokesman said.
“Our numbers are as good as, if not better than, our competitors, which is a strong indicator of ANZ’s ability to accurately review loan applications.”
It’s important to note that ANZ and the rest of Australia’s banks do not simply accept the lies given on mortgage applications. Australia’s exceptionally low mortgage default rates demonstrate that banks have historically done an excellent job of anticipating loan misstatements and building up sufficient buffers.
But the combination of rising interest rates and the extraordinary price mortgage borrowers have paid to enter the housing market over the past 12 months means the cohort of borrowers covered by the UBS survey will face a new test.
Luckily, Storey thinks they can pass it in relatively good shape.
The UBS survey shows that more than 51 percent of borrowers are more than three months ahead on their mortgage payments, while 42 percent believe they could cover between three and six months of mortgage payments in an emergency.
Additionally, 39 percent of borrowers say their expenses are well below their income, while about 60 percent say they manage their finances easily or fairly easily.
“Our overall conclusion is that front-book borrowers, which arguably represent higher risk, are able to withstand rising interest rates, although there are areas where stress could arise if RBA hikes reveal some vulnerability,” Storey says .
This is an important point. While UBS has closely followed the phenomenon of “liar loans” for a number of years, Storey stresses that the bank is not suggesting that the Australian property sector is hiding a level of risk that threatens the broader economy.
But the first rate hikes since 2010 and a likely drop in house prices — UBS is forecasting a 5 percent fall by the end of calendar 2023 — will put some pressure on some of the borrowers who bought over the past year.
How big the pressure is and how these borrowers deal with it remains to be seen.
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