Bank Negara Malaysia (BNM) on Tuesday has slammed requests to extend loan repayment period to 40 years, saying that the 35-year loan tenure is more than enough for borrowers to pay their loans by retirement age.
It noted that if the housing loan is offered to the borrower when he is 25 years old, a 35-year financing tenure will extend to the retirement age of 60 years.
“In addition, increasing the loan tenure to 40 years will further add to the total cost of financing without significant improvements in the affordability of one’s monthly instalment.”
According to BNM, financial institutions will continue to lend to persons who can afford a housing loan, including for the acquisition of their first homes.
Financial institutions saw outstanding housing loans grow at 10.1 percent year-on-year, totalling RM460.2 billion in July. Around 75 percent of housing loan borrowers (around 1.5 million borrowers) are first time home buyers.
“Access to financing is not the main problem confronting potential buyers of affordable houses. The fundamental issues that require resolution are affordability and the shortage of supply of reasonably priced houses,” said BNM.
It explained that the implementation of its responsible financing guidelines serves to protect the interests of individuals so that “they borrow within their capacity to repay the loans throughout its tenure”.
“This is to prevent borrowers from falling into financial hardship due to the excessive debt burden that may lead to foreclosures which will undermine the objective of house ownership.”
As such, financial institutions are responsible to establish that borrower’s income after statutory deductions, expenditure on necessities and all other obligations are able to meet debt repayments.
“This is to ensure that borrowers can continue to service the loan and have sufficient financial buffers for living expenses and deal with any future increase in financing rates and rising costs,” said BNM.
Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email mangales@propertyguru.com.my
