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Investment bank UBS’ latest Australian Banking Sector Update, which involved a survey of 1,008 anonymous consumers, revealed that over the fourth quarter of 2018 (4Q18), mortgages submitted to ANZ, Commonwealth Bank (CBA), NAB and Westpac contained a higher number of misstatements than loans submitted to regional banks.
According to the survey results, home loan applications, which respondents said were not “completely factual and accurate” represented 21 per cent of applicants lodged to non-major banks, compared to 36 per cent of loans submitted to ANZ, 35 per cent of mortgages lodged to CBA, 33 per cent to Westpac and 31 per cent to NAB.
UBS claimed that greater number of reported loan accuracy among non-majors is attributable to the “higher levels of verification required” by regional banks.
However, UBS reported an improvement in the factual accuracy of mortgage applications submitted to two of the big four banks.
The number of “completely factual and accurate” loan applications lodged through ANZ increased by 9 per cent from 55 per cent in 2017 to 64 per cent in 2018.
“We believe this improvement is likely to be due to ANZ’s more cautious approach to the mortgage market, especially investment property loans,” UBS said.
NAB’s level of factual accuracy also improved, up by 7 per cent, from 62 per cent in 2017 to 69 per cent in 2018.
However, UBS reported a decline in the number of home loan applications to CBA (67 per cent to 65 per cent) and Westpac (69 per cent to 67 per cent) that were reported as “completely factual and accurate”.
On a whole, the survey revealed that 76 per cent of respondents reported that the mortgage applications were “completely factual and accurate”, up from 65 per cent throughout the first three quarters of 2018.
According to UBS, the improvement in lending standards was largely driven by the scrutiny placed on the industry by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and not off the back of regulatory intervention.
“We believe this implies that despite the efforts of the regulators and banks to tighten underwriting standards from 2015 onwards, these appear largely ineffective,” UBS noted.
“Our survey suggests that improvements in factual accuracy in mortgage applications have only come in response to the royal commission.”
Property price expectations reversing
The survey also revealed that fewer respondents are expecting price growth in the next 12 months, compared to previous surveys.
UBS reported that respondents who believe prices will rise by more than 10 per cent in the next 12 months has reduced from 17 per cent in 2017 to 12 per cent in 2018.
Further, 38 per cent of respondents in 2018 said that they believe prices would rise up to 10 per cent, down from 45 per cent in 2017.
Respondents who said that they believe prices would remain the same has increased from 28 per cent in 2017 to 36 per cent in 2018.
However, 7 per cent of respondents are expecting prices to fall up to 10 per cent, up from 3 per cent in 2017, with 2 per cent of respondents expecting prices to fall by more than 10 per cent in the next 12 months, compared to no respondents in 2017.
[Related: Regaining trust in the financial sector ‘not the regulator’s job’: APRA]
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