The biggest hurdle faced by most homebuyers is the inability to obtain a housing loan, leaving many in despair.
Official numbers and statements stating the high rejection rates have been alarming and have been attributed both to the ignorance and inability of buyers to meet the financing institutions criteria.
However, there also have been various accounts from banks or developers citing different statistics on loan approvals and rejection rates, putting many in confusion and uncertainty.
In fact, not many are aware that in the first quarter of 2017, banks had approved RM22.3 million worth of housing financing to 90,137 borrowers across the nation.
These figures by Bank Negara Malaysia (BNM)’s quarterly bulletin entitled “Debunking the Myth: Property Measures Have Led to Higher Loan Rejected Rates” revealed that more than half as stated were borrowers of affordable housing units priced below RM500,000.
The author, Lim Le Sze, mentioned that the housing approval rate remained high at 74.2 percent in comparison with the average of 74.1 percent during 2012-2016 period.
On how such a percentage is calculated, Lim clarified that 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.
Meanwhile, in 2016, the Association of Banks in Malaysia’s official statement which is in line with BNM’s statistics quantified the approval rate for housing loans in 2016 was high at 73.8 percent.
BNM further disclosed that in that same year, 72 percent of housing loan borrowers consisted of first-time homebuyers of homes priced below RM500,000.
These statistics display successful purchases of affordable housing in the country especially among first-time homeowners, providing glimpses of hope for all those who have been left behind in the property bandwagon.
The approval rate takes into account housing loans approved by banks and accepted by the borrowers as well as housing loans approved by banks but subsequently cancelled by the borrowers.
Banks also generally do not include applications with incomplete documents when calculating the approval or rejection rate,” the statement read.
This sentiment was in line with PropertyGuru Malaysia Property Affordability Sentiment Index H2 2016 where 74 percent of respondents have successfully taken a bank financing without facing any difficulties or hurdles.
First-time homebuyers facing rejection?
Statements by The Real Estate and Housing Developers’ Association (Rehda) stated that the rejection rate for housing loans was high at 60 percent.
Rehda patron and past president Datuk Ng Seing Liong said this could be because banks filtered the housing loan seekers before even receiving applications.
“The standard is so high and it is difficult for potential home buyers to get financing,” he told a local daily.
On the other hand, Malayan Banking Bhd executive vice-president and head of consumer finance Abdul Razak Mohd Nordin said in a local daily “that when the customer comes to us, we do the pre-screening. If their track record is not good, we reject their application.”
“For these customers, we don’t take it as a rejection because it isn’t counted in our books, but when we go back to the developers they look at it as a rejection,” he said.
Abdul Razak said most potential first-time home buyers with a rejected loan can blame their lifestyles.
There was also the issue of CCRISS (Central Credit Reference Information System) record, he said.
“For those who are older you must make sure that your record is good. Even the recent issues of the PTPTN (National Higher Education Fund Corp) falls under CCRISS so from a banker’s perspective, what we advise potential home buyers is to settle their PTPTN loans first and then come back to us,” he said.
BNM justified that generally, housing loan applications were rejected if the borrower was highly leveraged with a weak credit history and had insufficient documentation to support the ability to repay the loan obligation.
As with other loans, one of the key factors that banks will consider is the capability of the applicant to repay the loan, said ABM, adding that applicants that meet the bank’s criteria will not be rejected.
What can a borrower do to secure a loan?
ABM said that with the wide range of home loan products available in the market, it is crucial for customers to identify the loan features which are important to them when shopping for a loan.
“Homebuyers must also be aware of the factors that banks take into account in evaluating a housing loan application, which may include the location of the property, the applicant’s credit rating, conduct of existing loan accounts and capability to service the debt.”
For first time homebuyers, there are financing options such as the government schemes including “Skim Rumah Pertamaku” (SRP), which can aid in their property purchase, ABM said.
“They may also want to consider applying for projects under ‘Perbadanan PR1MA Malaysia’ which offer the opportunity for middle-income households to own a home in key urban centres. There are also rent-to-own schemes available under PR1MA.”
“You must have a good credit record. If you have that, then banks will favour you. You must also have the ability to prove your debt service ratio is good.
“To increase that, especially for those who are single, they should file as a joint application whether it’s with their father, fiancée or whomever, for a better chance,” Abdul Razak said.
Some straight-forward tips in securing a home loan
A) Know how much you are eligible to borrow by checking with the bank based on your existing income and expenses or other loan repayment commitments.
B) Follow the general rule of thumb where the monthly home installments and other debt commitments such as hire purchase financing does not exceed 40 percent of the gross income.
C) Organise documentation and update them regularly as you may never know the need for it.
D) Have a good credit record by ensuring all payments are up to date on existing credit conveniences and liabilities.
E) Be transparent in disclosing all information especially with your financial position at that point of time.