MELBOURNE (CU)_Over the past few months, house prices in Australia have been escalating at record levels, reaching a 19 per cent increase from pre-pandemic levels. As a result, the average price of residential dwellings in the Trans-Tasman nation increased by a whopping $52,600 to $835,700. Just a year ago, this figure stood at $689,400.
Nevertheless, the Reserve Bank of Australia (RBA) insists that it is not the role of monetary policy to target house prices, and has therefore refused to lift the interest rates in order to tackle the situation. This boom in house prices have led to a jump in credit growth and a Swiss multinational investment bank claims that these circumstances have resulted in a material deterioration in lending standards.
According to economists at UBS, as people continue to chase the fast-rising property market, more than two in five homebuyers in Australia lied on their mortgage application over the past 12 months. They revealed that the number of factually inaccurate home loans increased by 3 percentage points to a record high of 41 per cent from a year ago, a figure that is well above the 27 per cent recorded in 2015.
In terms of the types of inaccuracies that were identified, the biggest areas were borrowers inflating their income and assets. According to the study, more there was an increase of 17 percentage points in the number of borrowers who overstated their income by more than 25 per cent, while the portion of share of applicants who inflated the value of their assets surged more than threefold. The bank also identified a significant number of individuals who understated their debts and living expenses when applying for a mortgage.
“Amid dwelling prices booming by 18.3 per cent year-on-year, we think that borrowers are ‘chasing the market’ and stretching towards their capacity limit, to be able to qualify for home loans,” the UBS economists wrote,” the UBS economists wrote. “Indeed, booming house prices recently led to a jump in credit growth, and our data suggests material deterioration in lending standards.”
