05 November 2010

70% Loan to Value

On 3rd November 2010, Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the 3rd house financing facility onwards taken out by a borrower.

Financing facilities for purchase of the 1st and 2nd homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies.

The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public. 

At the national level, residential property prices have increased steadily in tandem with economic development and the rise in income levels.  This aggregate growth trend remains largely manageable and has not deviated from the long term trend in residential property prices.  In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature.

The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations. This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers.  This measure therefore remains supportive of the objective of encouraging home ownership among Malaysians which continues to be an important national agenda.

Finance Malaysia:
A conservative move by BNM, to avoid dampening the whole property market, and at the same time taking pre-cautious measure to "deflate the mini property bubble". As FM mentioned before, Government should introduce a higher Real Property Gain Tax (RPGT) which could effectively curb excessive speculation. But, such move is not popular in view of the upcoming general election which could be held as soon as first half of 2011.

FM DO NOT think that the latest movement by BNM will have any effect on the market. This is because one could buy his/her 3rd house using his/her child or spouse name instead. Maybe this is an advantage of having many children?

Source: BNM website

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