UBS follows up controversial ‘liar loan’ report

by Miklos Bolza05 Oct 2017
Following hot on the heels of its controversial ‘liar loans’ report, global investment bank UBS has released a second paper on interest-only lending, again putting brokers in the firing line for “factual inaccuracies”.

The new Australian Banking Sector Update was written by UBS analysts Jonathan Mott and Rachel Bentvelzen as well as economists George Tharenou and Carlos Cacho, taking results from the UBS Evidence Lab 2017 Australian Mortgages Survey of 907 respondents.

Only 23.9% of respondents said they took out an interest-only loan over the past 12 months, the survey found. This was lower than APRA’s loan statistics which said that 35.3% of loan approvals in the year to June were interest only.

Claiming that the UBS survey results were correct with 99.9% confidence, the analysts said that “the most likely explanation for the lack of respondents indicating they have IO mortgages is that many customers may be unaware that they have taken out an interest only mortgage”.

The survey suggests that about one third of interest only borrowers are unaware of the type of mortgage they have, the analysts wrote, citing financial illiteracy as a prime factor.

UBS examined the financial stress of interest only borrowers, breaking this down between broker and direct channels.

“Interest only borrowers via the broker channel are more likely to be under high financial stress from recent rate rises,” the analysts wrote.

Breaking down their findings between those with no, low, moderate, and high financial stress, UBS reported the following:
  • No statistically significant difference for IO borrowers under ‘no stress’ or ‘low stress’ between the broker and bank channels
  • 30% of respondents from the broker channel are under ‘moderate stress’ compared to 46% from the bank channel
  • 42% of respondents from the broker channel are under ‘high stress’ compared to 20% from the bank channel
Levels of financial stress were also greater amongst those who had misstated their mortgage applications, UBS found, with 46% already under high financial stress compared to 31% whose applications were factually accurate.

In comparison, 21% of those who were truthful on their mortgage applications were under low levels of financial stress compared to only 7% who were factually inaccurate.

“Although these findings are disappointing, we were not surprised by these outcomes, which are consistent with other findings on brokers and factual accuracy in the UBS Evidence Lab 2017 Australian Mortgage Survey,” the analysts wrote.

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