To dispel the false belief that its strict lending guidelines have resulted in more housing loan rejections, Bank Negara Malaysia (BNM) pointed out that the mortgage approval rate is still high, reported The Star.
“The overall housing loan approval rate remains high at 74.2 percent,” with the rate between 2012 and 2016 averaging at 74.1 percent, said the central bank in its quarterly bulletin.
This means it’s not true that up to 60 percent of mortgage applications are rejected.
In Q1 2017, BNM granted RM22.3 billion worth of housing loans to 90,137 borrowers. Of these, buyers of affordable homes priced below RM500,000 accounted for 50 percent of the borrowers.
“Generally, housing loan applications were rejected if the borrower was already highly leveraged with weak credit history and had insufficient documentation to support ability to repay loan obligation.”
The central bank also wants to squash the misconception that its macro-prudential measures have prevented first-time buyers from getting mortgages.
“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 over-borrowing.” These include a loan-to-value (LTV) cap of 70 percent to people with three or more outstanding home loans.
“Therefore, this measure does not affect eligible first-time house buyers, who typically qualify for an LTV of up to 95 percent. In fact, it improves the chances of first-time buyers getting a loan as it shifts financial institutions’ focus away from the speculators.”
BNM also revealed that among the successful mortgage applicants last year, 72 percent consisted of first-time buyers who took out loans for residential properties worth below RM500,000.
Moreover, the central bank noted that a tenure of 35 years provides the borrowers with sufficient time to completely repay their housing loan.
“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 RM500,000 is increased from 35 to 40 years, the total cost of financing will increase by 17.4 percent or RM97,428 while the monthly instalment will only reduce by 4.4 percent or RM112.”
Meanwhile, BNM said that the developer interest bearing scheme (DIBS) is like the floating rate mortgages in the US, which is one main causes of 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 percent. Homebuyers generally were unaware of this fact due to lack of transparency and non-disclosure of material information.”
Image sourced from FMT
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my
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