• 16/10/2021

One in five have a liar loan: Experian

Michael Roddan| Australian Financial Review| 22 June 2021

https://www.afr.com/companies/financial-services/one-in-five-have-a-liar-loan-experian-20210622-p5833i

One in five Australians have fibbed to the bank when applying for a loan in order to avoid being knocked back by the lender, raising concerns about the return of “liar loans” in a surging housing market.

Slightly more than 40 per cent of lies when applying for home loans involved understating living costs, says a new survey by Experian, the world’s largest consumer credit reporting agency.

This month’s survey of 1000 Australians also found almost a third of consumers who lied understated their living costs when applying for a loan (28 per cent of fibs), while 21 per cent of untruths involved overestimating income.

Almost one in five lies involved hiding a pregnancy, while a quarter of applicants who misled the bank did so by withholding information about an upcoming change of job.

The survey also indicated that popular Buy Now, Pay Later services and credit card applications were highly vulnerable to inaccurate information.

The figures highlight concerns about a potential seedy underbelly supporting the local credit boom as house prices skyrocket in the wake of ultra-low interest rates and excessive government stimulus.

Investment bank UBS created shockwaves in 2018 when it warned of a boom in “liar loans” after finding about a third of borrowers gave information that was not “completely factual and accurate” to the bank during a loan application. That figure rose towards 40 per cent in 2019.

The Australian Prudential Regulation Authority has shored up lending standards among the local banks following an intervention into the market from 2014, and the regulator and the Reserve Bank of Australia (RBA) are closely monitoring compliance in the low interest-rate environment.

Historically, the rate of defaulting borrowers in Australia has been remarkably low, even during periods prior to the Hayne royal commission that probed the sector’s compliance with responsible lending obligations brought into law a decade ago.

Treasurer Josh Frydenberg is trying to repeal the laws, with the support of the RBA, amid concerns the responsible-lending obligations have evolved into an unwieldy compliance task at the expense of free-flowing credit.

Treasurer Josh Frydenberg. 

Critics of the move to repeal the laws point to strong credit growth following the COVID-19 pandemic and blistering house price increases.

“The fact that one fifth of Australians could be withholding information presents challenges for lenders within responsible lending practices,” said Mathew Demetriou, Experian’s Australian general manager of decision analytics.

“Without an accurate picture of a customer’s finances, lenders cannot be sure they are providing credit that is appropriate for that individual,” Mr Demetriou said.

One in five consumers told Experian it was the bank’s sole responsibility to ensure they were able to repay the loan. Less than a third of consumers believed they were solely responsible for being able to repay a line of credit. The remaining cohort believed both consumers and banks shared responsibility.

“It’s so important for people to provide correct information on their application, whether it’s for a phone plan or a home loan. If you don’t, the lender cannot fully understand your financial situation and this could hinder you in the long run,” said Mr Demetriou.

“However, credit providers need to be assessing their origination process and looking at how they can improve data accuracy at the point of acquisition.”

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