‘Lying’ loans on the rise as subprime mortgages drive home prices soaring
Australian house prices have jumped nearly 20% over the past year, and investment bank UBS has warned that a record level of “lying loans” as buyers “chase the market” could be one of the reasons.
- Record 41% of loan applications contain factual inaccuracies
- The most common fudges are the under-representation of the cost of living and financial commitments
- The banking regulator claims to have seen “no obvious bad quality loans”
The bank’s annual survey of around 900 people who took out a mortgage in the past year showed that 41% submitted loan applications that were not entirely factually accurate. – what are called “lying loans”.
This is a record in the seven years UBS has collected this data, up from 38% last year and 27% when the survey began in 2015.
It should be noted that there was a brief drop in the Royal Banking Commission hearings in 2018, at a time when banking and financial regulators were also cracking down on subprime lending.
While the majority of those who rigged the numbers said their requests were “mostly factual and accurate”, just under a third of those who lied to their bank said their request was only “partially” factual and accurate “, reaching an all-time high.
The most common areas of inaccuracy were under-representation of cost of living (34%), under-representation of financial liabilities (28%), and over-representation of income (22%).
Worryingly, the size of false claims also increased in 2021.
Of those who overestimated their income, 36% did so by more than a quarter.
Likewise, 39 percent of those who underestimated the cost of living did so by more than 15 percent.
UBS said the growing risk of home loans fueling the current housing boom was best captured by a record increase in “very high” mortgages – where the borrower owes at least six times what he earns each year – at 21, 5%. of loans.
“Amid house prices booming 18.3% yoy (highest since 1989), we believe borrowers are ‘chasing the market’ and stretching towards their capacity limit to qualify. “, says the report.
This was facilitated by a reduction in the interest rate at which loan applications are valued, which is now around 2.5 percentage points above actual mortgage rates, compared to more than 3 when macroprudential lending rules. more stringent were in place for the last time.
As in previous UBS Liar Loan surveys, borrowers who used mortgage brokers were much more likely to submit inaccurate claims (44%) than those who applied directly through a mortgage broker. bank (29%).
In the vast majority of these cases, borrowers said the mortgage broker advised them to falsify their application.
Real estate investors were also more likely to tamper with their loan applications (at 53% with one investment property and 57% for those with two) than homeowners (31%).
Buyers of rural and regional properties were also more likely to have faked loan applications, which was a new trend in 2021, perhaps as sea level and tree change rose.
Regulator minimizes fears over mortgage loans
The same morning, UBS released its latest findings, banking regulator APRA appeared before the House of Representatives Economic Committee with a very different message.
“The current problem is that there is an increase in the high debt-to-income ratio, but this is offset by a number of other measures that point in a more positive direction from a macroprudential perspective,” Wayne said. Byres, president of APRA. .
Mr. Byres indicated that a drop in the high loan-to-appraisal ratio and high interest loans only as a counterweight to any perception of increasing risk.
However, it should be noted that the sharp rise in house prices significantly lowers the loan-to-value ratio of existing loans.
Although he denied the evidence of deteriorating loan quality, Byres admitted that APRA was “cautious about the current environment and how it might play out.”
“It’s really about looking at household debt levels and the extent to which it is possible that household debt levels will far exceed levels of income growth for an extended period.
“And I think the [Reserve Bank] governor said he would be uncomfortable with that and I would be uncomfortable with that as well. “
Housing affordability is ‘stretched’, admits Westpac boss
These comments appear to align with UBS’s prediction that regulators could tighten mortgage lending standards, but likely not for a few months.
Amid the ongoing foreclosure and uncertainty over the pace of the recovery, it still seems unlikely that there will be any policy tightening before May 22, “the bank analysts wrote.
“Housing credit growth is expected to accelerate to> 7% year-on-year (and total credit growth close to 6%). Therefore, a macroprudential tightening is probably justified in the second half of 2022. “
Westpac chief executive Peter King told MPs on Thursday that housing affordability was at its worst in years.
“Our favorite measure of housing affordability that Westpac’s economics team uses, [which is] how you build your depot for an average home, again highlights that housing affordability is strained, ”King said.
“It’s at the worst level for some time.
“Then I think it’s just supply and demand, so one of the stats I’m looking at is the number of homes listed versus those bought, and we still have more demand than supply, which drives up prices. “