Home-owners have taken a psychological blow from soaring interest rates, but they have yet to feel a pinch in their repayment burdens.

Those who took out mortgages just a few years ago seem to be struggling more than those who have been debtors for many years. Newer home-owners are just now facing higher rates, while early home-buyers are used to being charged double-digit rates that prevailed in the wake of the 1997 economic crisis.

The fact is that debtors are still paying the same monthly amount as they have during the past two years. But most of the instalment is going to interest, in contrast to the past two years when more of their payments were funnelled into paring down the principal.

A resident of a Supalai condominium who declined to be named said that over the last two years he had been paying Bt10,000 a month, of which Bt6,000 was for the principal.

But he now pays Bt6,000 in interest, due to the higher rates. He is being charged 1 percentage point under than the minimum lending rate (MLR) or 6.25 per cent, compared with 3.5-4.5 per cent two years ago.

"Although the amount of the total instalment does not increase, most of it is interest. The instalment period will be extended or something else, if interest rates continue to rise," he said.

Most banks in practice charge loan customers about 1 percentage point over quoted rates, in case interest rates move up in the future.

A few years ago, the financial and non-financial environment - including the government's policy to boost consumption - encouraged people to spend and go into debt. Consumer purchasing power improved significantly and luxury goods were readily available on easy terms.

Many residential projects lowered prices and launched hot promotions. Banks were offering home loans at fixed, below-market rates. The government also unleashed incentives to stimulate the property market, particularly the 0.01-per-cent registration fee.

The condo owner said he was just browsing at the Supalai condo project but was seduced into plumping for a unit by the tempting conditions, such as price discounts, low interest rate campaigns and tax breaks.

But not only existing debtors are hurt from the recent rate hikes.

Somjin Sinchaiprasert, who works for a construction material supplier, was thinking of buying a new home but delayed the purchase after interest rate hikes ate into his capacity to carry a loan.

"The increasing rates would raise monthly instalments and extend the maturity. I worked out my budget and realised that I cannot afford the higher rate because I have other expenses," he said.

Last year the central bank told consumers to be cautious in taking on debt due to higher interest rates. But debtors then were not affected much by the rate hikes, which started to increase last year.

The impact on debtors in the future depends on how fast rates rise. If rates move more quickly and higher than expected, loans must be reviewed, including the terms and monthly payments.

Earlier, Bank of Thailand Governor Pridiyathorn Devakula said debtors would not be affected much if the loan rates do not exceed 8 per cent. He gave his assurances that the MLR would not go over 10 per cent.

The Supalai resident said he felt that his money is draining away as interest rates climb. All of his monthly payment could go to service interest, if he was charged 8.5 per cent.

"Rates continue to climb and no one knows when it will end. I feel upset every time rates are hiked," he said.

Somjin said he might buy a cheaper house or a resale house, or wait for three to five years.

"I realise that interest rates will not be low forever, so I have to firm up my plan," he said.

The central bank is optimistic that interest rates could fall again someday. And borrowers, mostly office workers, regularly get salary increases and should be able to cope with the increasing burden.

"A mortgage loan is a long-term contract and interest rates could decline after rising. Borrowers will struggle just at the beginning of their loans," Pridiyathorn said. "Consumers should be more careful about their spending."

Anoma Srisukkasem

The Nation