54% of Malaysians Cite Poor Credit History as Main Difficulty in Securing Home Loans

PropertyGuru Editorial Team
54% of Malaysians Cite Poor Credit History as Main Difficulty in Securing Home Loans
Building – and maintaining – good credit is tough. What makes it even more worrying is its sizable impact on the state of homeownership here in Malaysia.
In the recent Malaysia Consumer Sentiment Study for H1 2020, more than half of Malaysians attribute poor credit history as one of the main challenges faced when it comes to taking on a home loan.
The study surveyed a total of 1,108 respondents and found that 54% faced difficulties in obtaining a home loan due to poor credit history. The majority of respondents were slightly familiar with home loans – while only the smallest percentage of 15% were very familiar.
While this is an on-going issue among most homebuyers, it is more apparent among the subgroups of renters and those living with their parents.
Furthermore, young Malaysians who come under these sub-groups are aged between 22-29 years old and have lower knowledge on their Total Debt Servicing Ratio. When asked, 53% were unaware of their total debt servicing ratio.
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What affects a person’s credit score?

Clearly, poor credit history is the main deterrent for Malaysians trying to secure home loans.
This isn’t something new, and has been vastly covered by PropertyGuru in the past.
Continuous late payment of bills for one, will no doubt ensure a person’s credit score takes a turn for the worst. Lenders look for a disciplined and responsible borrower – not someone who is continuously late or misses out on their debt repayments.
This comes under payment history, which makes up for the most important component in your credit score. In total, there are 5 factors that impact a borrower’s credit score:
  • 45% – Payment History
This component includes late repayments as well as any previous debt settlements, bankruptcies and foreclosures.
  • 20% – Amounts Owed
How much of the maximum credit limit is utilized each month, and how much is owed on other credit facilities?
  • 14% – New Credit
How many accounts have been opened or applied for recently? Too many applications within a short period of time may be perceived as desperate.
  • 14% – Credit Mix
How many different types of credit such as credit cards, home loans and auto loans does the borrower possess?
  • 7% – Credit History Length
A new borrower who has just started to establish their credit score may be seen as less trustworthy. However, having a long history of credit doesn’t guarantee good credit if there are constant late payments.
Hence, more emphasis needs to be placed to instil proper credit best practices in Malaysians. From proper estimation before taking on a new loan and keeping bad debt low, to facing problems in credit history face on.
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Malaysians attribute other struggles in obtaining a home loan

1) Hefty down payments to blame

While poor credit history was a definite problem for 54% of those surveyed, 51% of respondents also claimed hefty down payments to be a limiting factor for getting the home loan they need.
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One might argue that the abundance of zero down payment schemes should be able to mend this problem. But while this incentive from developers may be attractive to say the least, a less-than-feasible down payment sum is often a sign that the property price itself is out of the borrower’s reach.
For Malaysians facing this very problem, know that taking advantage of down payment assistance to better manage your cash flow is very much different from using it to afford a house outside of your means.

2) High income doesn’t make one more creditworthy

The linear rise of remote work needs no introduction. As a side effect however, it may be affecting the ability of Malaysians to secure home loans.
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In the report, 40% of respondents quoted their unstable jobs and salaries to be one of the difficulties faced in obtaining a home loan.
Though a borrower may be earning more on an average basis, a fluctuating monthly income will be perceived as unstable by lenders.
In order to prove consistency in your income, self-employed Malaysians need to better manage their finances. For those running solo, you may register your business under a sole-proprietorship and issue a fixed monthly salary along with EPF to yourself. When applying for your home loan, getting a strong guarantor to back you up will be beneficial as well.
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3) Lost in paperwork

Resources abound in Malaysia’s property scene. Unfortunately, not many Malaysians may be aware nor seek to fully utilize them.
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30% of respondents said their unfamiliarity with the required paperwork posed a problem in securing a home loan. Submitting the wrong documents may seem a simple reason, but it’s behind a number of mortgage rejections in Malaysia.
For first-time loan applicants especially, preparing the necessary documents can be a confusing journey as they differ for each person. The complex terminology doesn’t help either.
Our guide here will be helpful, or simply call your preferred lender to ask. Avoid another rejected application by simply making sure the proper documents are well prepared beforehand.

4) Lack of supporting documentation

For some applicants out there, or to be more specific – 27% of our survey’s respondents, knowing what documents are needed isn’t a problem. Rather, it’s not having the required documentation.
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For example, self-employed Malaysians may need to show a copy of their business registration which has been in operation for at least 2 years. For those operating a business without registration (which is illegal) or have only been running their business for merely a year, some troubles may be faced here.
With a rather messy documentation procedure, it comes as no surprise that many Malaysians face roadblocks in securing home loans when it comes to the messy paperwork.
Our advice is to communicate clearly with your lender to find out exactly what documents are needed, and work on building them out or sorting out any issues that may prevent you from securing said documents.
Only apply once you’re (ideally) 100% confident you’ve got the black-and-white all sorted out.

5) One too many loans

In the report, 24% of respondents found that having too many loans hindered their ability to secure a home loan.
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The more liabilities one takes on, the more they tend to layer over each other and turn into an insurmountable mess. By the time a borrower seeks to apply for a home loan, they may find their total debt service ratio to be much too high to grant them eligible for any financing.
Hence, the best advice is always to live within your means, increase your income where you can and refrain from taking on too many loans and other liabilities.

6) No escape from student loans

In May 2019, the number of defaulted PTPTN borrowers amounted to more than half of all the fund’s borrowers.
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This spells out a worrisome reality – that graduates are beginning their career journey already tens of thousands of ringgit in debt. Not only does this make homeownership a difficult feat, but may also affect employment and future applications for all credit facilities including home loans.
This is reflected in statistics found in the report, that 24% are unable to obtain a home loan due to outstanding PTPTN debt.
For those in a similar situation, do know that you can negotiate to have your debt restructured to a lower monthly repayment for a longer tenure. Either way, it’s key that you need to get a headstart on chipping away at the arrears.
No one ever said obtaining home financing would be easy, but making the process smoother is simple. Find out the requirements beforehand and ensure you’re eligible before taking your application forward.
If you’ve set your sights on obtaining a property of your own in the near future, you can calculate your own affordability with PropertyGuru’s Home Loan Calculator!
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