Help for homebuyers on the way

You are a salary earner who wishes to have a home of your own one day. But your income so far can only make ends meet each month.

Thus, you've never saved up enough for a down payment. Now, it seems that luck is on your side.

The Cabinet on Tuesday approved a Bt116billion midyear budget, mostly for economic stimulus and worker welfare.

Together with the stimulus budget, the government will introduce a mortgage insurance scheme to solve the problem of those who want to take out a home loan but have no savings for the down payment.

This scheme is also aimed at helping to stimulate the economy while keeping nonperforming loans down.

Since it was proposed by the Government Housing Bank, it will also participate in the scheme.

Here are some key questions and answers about the scheme:

What is the mortgage insurance scheme?

A mortgage insurance office will be established with GH Bank as a major shareholder, taking a stake of about 20 per cent. The other shareholders will be insurance companies.

When a customer wants a mortgage but can't make the down payment, he could buy an insurance policy for the mortgage.

For example, 'A' wants to borrow Bt1 million to buy a house. He can't come up with the deposit of Bt200,000, as the bank could lend him only Bt800,000 or 80 per cent of the house's price.

If it is a condominium unit, the down payment would be raised to 30 per cent.

So, 'A' has to buy a policy from the mortgage insurance office in favour of the bank. Then, they would write the policy. Once the policy is approved, 'A' would be granted a Bt1million loan, or 100 per cent of the house's price, from the bank in order to buy the house he is dreaming about. Then, 'A' will be able to start paying monthly instalments.

The bank would be willing to grant the loan to 'A' because the mortgage insurance office will guarantee the Bt200,000 part of the total loan. If 'A' couldn't honour his instalments, the mortgage insurance office, with insurers as shareholders, will take responsibility for the payments.

How much would a borrower have to pay for mortgage insurance?

According to Korbsak Sabhavasu, a deputy prime minister, the premium could be up to Bt50,000Bt60,000. This is much better than having to pay Bt200,000 in a lump sum.

If you can't pay the premium in full, you can add the premium to the mortgage. And then you start paying monthly as usual.

Who would be eligible for mortgage insurance?

Almost every homebuyer could buy this insurance. However, only the applicant who is qualified for a bank loan would be approved for a mortgage. So, if you are not qualified for a bank loan, it's no use that you have the money to pay for the premium.

Khan Prachuabmoh, president of GH Bank, said yesterday that those who already have the means to make the down payment would naturally not be interested in this scheme. But this scheme is designed for people who are short of savings.

Korbsak said the government aimed to help borrowers of loan amounts of Bt1 millionBt2.5 million.

When will this scheme take effect?

Khan expects the scheme will be implemented in the middle of the year. The scheme will be enacted by an executive decree, which is a procedure that takes some time, while the mortgage insurance office will also need to be established.

Is this type of scheme very unique in the world?

No, the US and Hong Kong have successfully operated similar schemes.

Another piece of good news for homebuyers is that, in purchasing a new home, they might be able to get a tax deduction. But this is only a proposal, which is still not approved.

A Finance Ministry source said the latest proposal includes allowing a homebuyer to deduct up to 2030 per cent of the residence's price, with a cap of between Bt200,000 and Bt500,000.

The source also said the government may not extend the tax breaks for boosting the property sector that were initiated by the previous government, including a waiver of house transfer fees, house registration fees and specific business tax.