(Australian Associated Press)
Home loan borrowers could be hiding how much they earn but analysts aren’t sure whether they are lying to their banks, the ATO, the census or the Australian Bureau of Statistics.
UBS analysts Jonathan Mott and Rachel Bentvelzen have warned that income levels reported to banks are “highly improbable” compared to various official figures that suggest borrowers could be exposing lenders to material risk by overstating their income.
But the analysts said Commonwealth Bank, National Australia Bank and Westpac data implying 42 per cent of home loans last year went to people with gross incomes of more than $500,000 could also mean people are understating their income to the Australian Taxation Office.
“We remain concerned with mortgage underwriting standards in Australia,” they said in a report on Wednesday.
“We believe that responsible lending and mortgage mis-selling are material risks for the banks.”
The analysts said many of the banks’ estimates of their mortgagees’ loan-to-income and total debt-to-income ratios may be understated, while net income surplus may be overstated as a result of the inadequate income validation process.
“This implies borrowers could be materially more stretched than the banks believe,” the analysts said.
They suggested home loan applicant should be required to provide tax file numbers to banks to guard against them lying about income.
The provision of tax returns as part of a mortgage application is common in many parts of the world but not in Australia, the analysts said.
Although Australian mortgage applications are considered full documentation, this often only requires three pay slips to be provided.
“We do not believe the current income validation processes in Australia are sufficient,” the analysts said.
Last September, UBS estimated as many of a third of Australian mortgage applications contain deliberately false statements.
UBS estimated this meant there was about $500 billion of so-called “liar loans” on banks’ books.