Brokers and banks could be lied to by customers over credit applications, according to new research from Experian.
They found that one in five Australian borrowers embellished or omitted important details on their loan approval forms, especially in the personal loans and credit card areas. Another 60% said they did not understand how loans were valued.
“We conducted this study on Australian borrowers to understand their thoughts on the current loan approval process and to get their honest take on what goes through their minds when applying for a loan, in terms of sharing. a completely accurate picture of their financial situation. position, ”said Mat Demetriou, general manager of ANZ business intelligence at Experian.
“We have uncovered some interesting findings, the headline of which is that one-fifth of Australians admit to lying about their credit application. I think the reason is that there is a feeling that if they did disclose the full images, it could hamper their chances of approval.
“The common white lies that were confessed were about the underestimation of the cost of living, another around existing debts and investments and the overestimation of income. They were interesting discoveries, but at the same time, probably not too surprising. “
“We saw a lot of things come out of the back of the Royal Commission a few years ago. Obviously, we see a few of these things continuing despite the fact that banks are more arduous and scrupulous in processing and assessing consumer affordability.
The study comes as politicians debate Responsible Lending Obligations (RLOs), the rules that govern how banks approve customers for credit. Since 20% of applicants can mislead banks, this could be factored into the responsible lending decision making.
“It’s a two-way street,” Demetriou said. “The banks may have been a little lax in their processes to accurately qualify this information, but at the same time, the onus is on the consumer to present a true picture to the lender.”
“There are longer-term problems if that doesn’t happen: it’s problematic for the lender if customers are having trouble, but it’s also very inconvenient for the consumer if it does.
“One of the issues right now in a buoyant credit market where the mortgage market is foamy and there is a lot of FOMO, and if you are a young family trying to get your first home that ends up being pushed back to auction regularly, you can get a little desperate.
“This FOMO ends up stretching you the truth a bit, which is inconvenient because if interest rates rise over time or if we see rising inflation, living expenses will rise and you will find yourself in a position precarious.”
“There is an obligation on both parties and income verification is not an exact science. Some consumers, when applying for a loan, may think of their expenses and think of them as luxury items – eating out, expensive gym memberships, etc. on which I will compromise and sacrifice.
“According to the letter of the law, they should be included as part of the application and the process. These are the kinds of things that are underestimated. “
The ABC recently changed their home loan appraisal rate, a key factor in how they decide which loans are accepted.
“It’s a very competitive market with limited differentiation in the mortgage space,” said Demetriou. “The ABC takes a pragmatic approach, and others do the same. There is more pressure on them on the backs of the Royal Commission and increased RLOs. It should be standard practice to have a solid buffer, and in an environment of record interest rates, this is more important than ever. “