OVERALL housing loan approval rates in Malaysia continue to be high, despite the misconception that cooling measures have led to an increase in loan rejections.
According to the quarterly bulletin of Bank Negara, Malaysia’s central bank, it was a myth that housing loan rejection rates are as high as 60 per cent.
“The overall housing loan approval rate remains high at 74.2 per cent [average 2012 to 2016: 74.1 per cent]. The approval rate is the ratio of the number of housing loan applications approved by all banks in Malaysia to the number of housing loan applications received by the banks during the same period.”
Bank Negara says banks approved a total of 22.3 billion ringgit (Bt175.9 billion) of house financing in the first quarter of 2017 to 90,137 borrowers.
“Of these, more than half was for buyers of affordable housing units priced below 500,000 ringgit,” the bulletin reported.
“Generally, housing loan applicaฌtions were rejected if the borrower was already highly leveraged with weak credit history and had insufficient documentation to support abilฌity to repay loan obligation.”
Separately, the central bank says it was a myth that first-time buyers are unable to obtain housing loans because of the impositions of macro-prudential measures.
“The measures introduced by the bank since 2010 were for two specific purposes, namely to curb excessive speculative activity in the housing market and deter overborrowing.”
Bank Negara says the maximum loantovalue ratio (LTV) of 70 per cent introduced in 2010 is imposed only on borrowers with three or more outstanding housing loans.
“Therefore, this measure does not affect eligible firsttime house buyers, who typically qualify for an LTV of up to 95 per cent (including mortgage reducing/decreasing term assurance). In fact, it improves the chances of firsttime buyers getting a loan as it shifts financial institutions’ focus away from the speculators.”
First-time home buyers
According to the central bank, about 72 per cent of housing loan borrowers in 2016 were firsttime buyers of homes priced below 500,000 ringgit. Bank Negara says the maximum housing loan tenure of 35 years is more than sufficient for borrowers to settle their loans by retirement.
“Increasing the housing loan tenure will add to the total cost of financing and also would not significantly improve one’s debt service ratio.
“To illustrate this point, assuming the tenure for a housing loan of 500,000 ringgit is increased from 35 to 40 years, the total cost of financing will increase by 17.4 per cent or 97,428 ringgit while the monthly instalment will only reduce by 4.4 per cent or 112 ringgit.”
The central bank says the develฌoper interest bearing schemes (DIBS) are similar to adjustable rate mortgages – which was one of the key causes of the subprime mortgage crisis.
“These schemes should not be allowed as they encourage excessive speculative activity in the property market and cause artificial increases in house prices.
“Property valuers indicated that the price difference between houses with DIBS and without DIBS can be as high as 30 per cent. Homebuyers generally were unaware of this fact due to lack of transparency and nondisclosure of material information.”
Bank Negara realises that buying and owning a house is a longterm commitment and represents a significant financial obligation for an individual. It argues that rigorous financial planning and the availability of sound financial buffers against unexpected events are critical.
The central bank says it is aware that for a household earning 5,000 ringgit monthly, there is very little money left for savings or emergencies (when paying for a home that costs 300,000 ringgit) after deducting the monthly instalment for a housing loan and monthly household expenฌditures.
“Measures to promote responsible lending and borrowing are intended to deter borrowers from incurring debts that could lead to financial hardship.
“It minimises the risk of borrowฌers having to carry an excessive debt burden and losing their homes to foreclosure if they are unable to service the debt,” according to Bank Negara.