‘Liar Loans’ – Why Accurate Loan Applications Are Necessary
With more and more people looking for a home loan to capitalise on low-interest rates and rising house prices, banks are becoming more careful with who they loan to. This is to ensure that they stay compliant with the enforced changes from the banking royal commission and that they are selecting appropriate borrowers.
Recently, however, certain home loan applicants have been circumventing these tightened application requirements through lying on their applications. A recent UBS survey has found that 37% of home loan applicants aren’t entirely honest with their applications. This startling statistic can not only cause issues for this 37% of applicants, but also for the Australian economy at large. In this article, Vision Property and Finance takes a deep dive into these liar loans and outlines why accurate loan applications are necessary.
What is a Liar Loan?
A liar loan is a loan application that is presented to a bank or financial institution that does not accurately reflect the financial situation of the applicant. This may include the applicant inflating their planned earnings for the year, or downplaying their costs of living. Why this is an issue is that banks may lend lying applicants too much money, with too high repayments, and a too-high interest rate for the applicant’s financial situation.
Consequences of Being Caught with an Inaccurate Loan Application
If caught lying on a loan application, banks will reject the whole application, with any costs to the applicant attributed to compiling and submitting the application being wasted. Alongside this, your credit score will be damaged, with this fraud attempt being shared with other lenders. If a lender finds out that a loan application has been lied on after the purchase of the house, lenders have the right to call in their mortgage. This means the borrower has to pay back the mortgage in 30 days, with the majority of borrowers needing to sell their homes.
Consequences of Not Being Caught with an Inaccurate Loan Application
The consequences of not being caught however are just as harsh. Of this 37% of liar loans, 13% have seen their household income by an average of 13%. 36% of them have deferred their mortgage payments, and 71%, when given the opportunity, withdrew from their superannuation. With a loss of household income, more interest repayments, and reduced superannuation growth over time, these losses may offset any gains made from owning a home.
Vision Property and Finance has submitted thousands of loan applications and ensures that its lenders are appropriately matched with their loans. If you’re looking for mortgage application help, get in touch with us here.