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Up to a third of Australian mortgages could be “liar loans” based on factually inaccurate information, investment bank UBS has warned.

The global banking giant has followed up a survey of home loan borrowers that it first conducted last year, when it found evidence of widespread mortgage fraud.

 

The latest detailed survey of more than 900 people who took out a home loan in 2017 has found that only 67 per cent responded that their mortgage was “completely factual and accurate”, down from 72 per cent of 2016 borrowers.

The vast majority of the mistruths appear to be white lies rather than total porkies, with a quarter of 2017 survey respondents saying their loan application was “mostly factual and accurate”, while only 8 per cent admitted to their information being only “partially factual and accurate” — 1 per cent refused to say.

Given the average turnover of home loans in Australia, UBS has estimated that around $500 billion worth of outstanding home loans contain misstatements about incomes, assets, existing debts and/or expenses.

With just under $1.7 trillion of mortgage debt outstanding, that means home loans based on inaccurate or fraudulent information account for 29 per cent of the total, and 18 per cent of all private sector debt in Australia.

Misinformation could leave banks more exposed to housing downturn

Given that the average scale of the misstatement across income, expenses, assets and living expenses was between 10-12 per cent, UBS has warned that it makes Australia’s banks even more vulnerable to a housing downturn than most people think.

“This survey suggests many people have come to take house price inflation as a given and are prepared to be factually inaccurate on their mortgage application to ensure they get access to housing leverage,” UBS warned in the report.

The investment bank has an “underweight”, or sell, rating on Australian banks and has warned that loan losses may be bigger than expected given that many borrowers are in a much weaker financial position than the banks and regulators believe.

That would lead to even worse consequences for the Australian economy than policymakers expect if the housing market turns down.

UBS also warned that the banks may be vulnerable to litigation if home prices stop rising and over-indebted customers start defaulting.

It argued that more needs to be done by the banks to verify loan applications, starting with a requirement to see lodged tax returns.

ANZ, NSW have the highest proportion of ‘liar loans’

This year, UBS also broke down its numbers by financial institution.

ANZ had the highest proportion of mortgages that were not “completely factual and accurate”, with 45 per cent falling into the investment bank’s category of “liar loans”, a term borrowed from the US subprime mortgage crisis.

That was significantly above the industry average of 33 per cent, as was NAB’s level of loan approvals that contained misrepresentations or inaccuracies.

ANZ’s chief executive Shayne Elliott told investors at its most recent quarterly profit update that it was growing owner-occupied lending “much faster than the market” and was “really comfortable with that”.

All four major banks recorded a much higher level of dodgy mortgage approvals than the rest of the financial sector (at 23 per cent).

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