More than half of Australian mortgage holders who took out a new home loan lied about their circumstances to make sure their loan was approved.
According to UBS, the main misrepresentation is “under-represented living costs”.
51% of homeowners are more than 3 months ahead on mortgage repayments.
Mortgage distress should be minimised to some extent by mortgage serviceability assessments.
Under these serviceability scenarios, borrowers should be able to accommodate higher mortgage repayment costs.
More than half of Australian mortgage holders who took out a new home loan with one of the major banks lied about their circumstances to make sure their loan was approved, shocking new research has revealed.
The survey, conducted by UBS, revealed that 55% of Aussies who took out a home loan with ANZ in the 6 months to December 2021 made false representations on their application.
During the period of booming house prices and fierce competition for properties which led to FOMO (Fear of Missing Out), it seems more Aussies pushed the envelope trying to borrow to the max – usually by fudging their declared living expenses.
“This is particularly concerning, given ANZ’s persistent declines in mortgage market share, and the fact that 81% of the 93 respondents who misrepresented their ANZ originated loan claim they were advised to do so by their banker,” UBS analyst John Storey said in the analysis.
ANZ lost market share during the height of the COVID-19 pandemic when the bank was caught unprepared for a housing boom that saw mortgage demand skyrocket.
Turnaround times slowed, and faster lenders stepped in to snatch market share from the bank.
And the numbers are disappointing given the survey shows that the overall ‘liar loan’ trend actually decreased to 37% in 2021, from 41% in 2020.
But, as they say, there’s more…
As for the other major banks, the analysis showed that 40% of Westpac customers had lied on their application, while 30% did at Commonwealth Bank and 19% at National Australia Bank.
The main misrepresentation was “under-represented living costs”, according to UBS.
The news is particularly concerning at a time when the Reserve Bank has officially begun hiking rates.
The 0.25% hike in May is the first increase mortgage-holders have experienced in 12 years.
And the increase comes with a warning that there are many more hikes to come.
You see, even a 1% rise could add hundreds of dollars a month in repayments on the average new mortgage.
So mortgage holders with ‘liar loans’ could be further stretched than we realise.
The UBS survey also revealed some more promising data.
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It found that 51% of homeowners are more than 3 months ahead on mortgage repayments and 25% have savings buffers and emergency funds to cover 7 to 12 months of repayments.
Of course, the regular property pessimists are out there telling us our property markets are going to crash because of “mortgage stress.
One analyst warned the country could be in for a “big shock” telling the Australian Financial Review:
“If 70% of customers are ahead on mortgage repayments, that means 30% of people are not, which I think is pretty worrying.”
“When you add up the fact that people are misrepresenting their income to get loans, we could be gearing up for a big shock.”
But I don’t agree.
Australia’s property market will continue to be propped up by the fact that close to 70% of properties are owned by homeowners and around half of these have no mortgage against their home.
In fact, the total value of Australia’s residential real estate market is close to $10 trillion and is only a total of around $2 trillion in debt against this.
Sure some young first homeowners have loan commitments of more than 30% of their income - the definition of mortgage stress but they tend not to sell up when things get tough – they would rather eat Maggi noodles than sell their homes.
And in line with what the survey shows, we know that those who do have a mortgage are well ahead in their mortgage repayments.
In fact, it is estimated that a total of $1.37 billion is sitting in offset or redraw accounts.
Also remember that mortgage distress should also be minimised to some extent by mortgage serviceability assessments at the time of the loan origination since banks have, in general, been very conservative when it comes to stress testing.
All borrowers would have been assessed to repay their mortgage under a scenario of mortgage rates being 2.5 percentage points higher than the origination rate, and since October last year, borrowers were being assessed at mortgage rates of 3 percentage points higher.
Under these serviceability scenarios, borrowers should be able to accommodate higher mortgage repayment costs, although such a rapid rate of inflation could create some challenges for borrowers with thinly stretched budgets.
Combine this with the fact that the average Australian is wealthier than ever, our economy is robust, wages are rising, there is a dire supply shortage ahead, and migration is about to pick up and it’s clear our property market is in good shape.