Would you lie to get your mortgage approved?

Securing a mortgage and landing your dream home are goals shared by many Australians but how far would you go to make it a reality?

A new survey of homebuyers conducted by UBS has found that more than a quarter of those who have taken out a mortgage in the past two years stretched the truth on their application.

This includes 21 per cent of people who said the information they provided the lender was mostly factual and accurate and a further 5 per cent who said it was partially factual and accurate. Two per cent of respondents chose not to respond to the question.

While this does leave a vast majority of borrowers who claim to tell nothing but the truth on their loan application it does throw doubt over the ability of some borrowers to service their loan.

In a low interest rate environment, these sorts of borrowers may be able to meet repayments but the risk comes when interest rates begin to rise and borrowers are no longer able to comfortably pay off their loan.

The most common fib that survey respondents admitted to telling on an application was under-representing living costs on loan applications. Other common un-truths included under-representing financial commitments, over-declaring other assets and over-representing household income.

Respondents living in New South Wales and Victoria were the most likely to admit to telling a lie in their loan application and with these states leading the country with the highest median property price it’s not hard to see why.

“Given the rapid house price inflation that has been seen in parts of Australia (especially Sydney and Melbourne), the fact mortgages now represent 62 per cent of the major banks’ loan books and household debt to disposable income is now at 186 per cent, we believe that mortgage risk is more elevated than it has been previously,” UBS’s analysts noted.

These results can perhaps be interpreted as a symptom of Australia’s housing affordability conundrum which has many borrowers desperate to enter the property market before prices continue to rise, even though they may not be financially ready.  

Perhaps most worryingly, 41 per cent of survey respondents who had secured their loan through a broker and admitted misrepresenting some information said that they had done so at the suggestion of their broker.

This reveals a deeper issue at play in the mortgage industry that could leave borrowers vulnerable to defaulting on their loan as interest rates and living costs rise and the banking industry vulnerable to instability. 

Despite the Australian Prudential Regulation Authority focusing on this industry issue in recent years it is obvious that a problem still persists with the way applications are investigated and approved by brokers and banks alike.

For borrowers, it remains important to remember that while lying on an application may get you the loan in the short term, if you can’t meet the repayments, you will ultimately end up worse off than before. 

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