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UBS banking analysts have published the results of a new survey, involving 860 Australian borrowers who secured a mortgage between July and December 2021.
Overall, 37 per cent of respondents reported they had made misrepresentations on their home loan applications, slightly lower than the 41 per cent that UBS saw in 2020.
Of borrowers who had lodged loans through brokers, 39 per cent reported misrepresentations, declining from a record high of 44 per cent in 2021. Around half of that proportion (21 per cent of all borrowers) said their broker had suggested the misrepresentations, declining from 30 per cent in 2021.
Meanwhile borrowers who had gone direct to the lender were more likely to have secured “liar loans” than the year before, from 29 per cent to a record high of 33 per cent. Around two-thirds of these respondents (21 per cent of all borrowers) said their banker had recommended the misstatements.
However, the UBS analysts reported customers from ANZ had stood out to the bank’s rivals, with more than half of survey respondents (55 per cent) who had used the major bank indicating they had made misstatements on their mortgage application.
ANZ had seen a 1 percentage point uptick in liar loans, in contrast to its big four competitors, which had all seen declines: CBA was down by 6 percentage points to 30 per cent of mortgage customers who lied, NAB plummeted by 27 percentage points to 19 per cent and Westpac slipped by 1 percentage point down to 40 per cent.
The UBS analysis called the development “particularly concerning”, given ANZ’s recent falls in market share.
But, 81 per cent of the 93 respondents who had made fabrications on their application for an ANZ home loan claimed they did so on advice from their banker.
Similarly, 92 per cent of the 12 respondents who had lied on their application for an AMP home loan said they had been advised to do so by their banker.
In contrast, of the respondents who misrepresented for a Westpac loan, 44 per cent said their banker had advised the move, compared to 40 per cent for CBA and 21 per cent for NAB.
“ANZ’s continued deterioration is at odds with the broader improvement in bank originated loan factual accuracy in 2022 across other major and regional banks (noting smaller regional bank sample sizes,” the report from analyst John Storey, economists George Tharenou and Nic Guesnon; and associate analysts Olivia Clemson and Benjamin Rothery said.
In response, an ANZ spokesperson told Mortgage Business that "after several years of similar external reports about the quality of applications", the bank's delinquency numbers had dropped.
"Our numbers are as good as, if not better, than our peers, which provides a strong indicator of ANZ's capacity to accurately verify loan applications," they said.
"Whether a home loan application comes through our branch network or a broker, we always verify income and affordability, ongoing financial obligations and enquire about expenses and other aspects of the application."
They added the introduction of Comprehensive Credit Reporting had also helped the bank access a range of additional data such as the number of financial obligations and their performance, boosting its ability to verify applications.
In 2021, the UBS team reported, more borrowers had been likely to stretch themselves to enter the market, amid surging prices. Around 30 per cent of respondents had expected prices to rise by more than 10 per cent in the next six months during 2021, a peak for UBS’ records, compared to around 20 per cent in the last survey.
Excluding participants who wouldn’t say, most borrowers under-represented their living costs (33 per cent) while others under-represented their financial commitments (22 per cent), overdeclared other assets (17 per cent) or over-represented their income (17 per cent).
Around 72 per cent of the borrowers who had over-represented their assets did so by 5-24 per cent, compared to 45 per cent of respondents in the previous year. The proportion of borrowers over-representing their assets by a smaller magnitude had slimmed down, from 14 per cent to 9 per cent.
Meanwhile a fifth (21 per cent) who under-represented their living expenses had done so by more than 14 per cent – almost half of the same cohort’s size in the last survey. According to UBS, the size of under-representation had improved.
Similarly, of those who under-represented their financial commitments by 14 per cent or less, the proportion jumped to 54 per cent of respondents, compared to 38 per cent in the last year.
Preparing for rising rates
More than half (58 per cent) of respondents in the UBS survey were more than three months ahead on their repayments.
“Our overall conclusion is that front-book borrowers, which are arguably higher risk, have capacity to withstand rising interest rates, although there are pockets where stress could emerge with RBA hikes exposing some vulnerability,” the UBS report said.
The team does not expect further macroprudential curbs from APRA ahead, after it raised the minimum serviceability buffer rate to 3 percentage points over a mortgage product rate, compared to the previous 2.5 percentage points standard.
Around 70 per cent of survey respondents who had prior mortgage application experience reported the process had become more difficult in their opinion.
According to the analysis, the “window for further macro-prudential tightening has effectively passed”, with the financial regulators not signalling further tightening when they met in the March quarter and house prices already beginning to moderate.
Further, a rate rise from the RBA is expected to “quickly crimp debt serviceability”.
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