BY Chris Prasad
Heated debate about developers being licensed to offer money lending facilities over the past weeks has resurrected fresh criticism about banking institutions and the current environment of tough lending guidelines.
Arguments on both sides of the fence regarding developer loans have brought up Bank Negara Malaysia’s (BNM) stringent lending guidelines, which have resulted in a higher-than-ordinary loan rejection rate – a point that is considered to be at the heart of the issue.
However, this week the central bank hit back with a sobering message: “responsible lending guidelines ensure affordability for borrowers”.
“Access to financing is not the main problem confronting potential buyers of affordable houses. The fundamental issues that require resolution are the affordability and shortage of supply of reasonably priced houses,” BNM said in a statement.
This was in response to a call by industry stakeholders to review the lending guidelines and provide an extension to the maximum loan repayment period – from 35 years to 40 years.
“The implementation of BNM’s responsible financing guidelines serves to protect the interest of individuals, so that they borrow within their capacity to repay the loans throughout the loan tenure. This is to prevent borrowers from falling into financial hardship due to excessive debt burdens that may lead to foreclosures, which undermines the objective of house ownership.”
BNM went on to say that financial institutions are responsible to establish that the borrower’s income, after statutory deductions, expenditure on necessities and other obligations, is sufficient to meet debt repayments. This ensures that borrowers can continue to service their loan and have sufficient financial buffers for living expenses and deal with any future increases in the cost of living.
“Financial institutions will continue to lend to individuals who can afford to take on a housing loan, including to purchasers of first homes. In July 2016, outstanding house loans extended by financial institutions continued to grow at 10 per cent year-on-year and totalled RM460.2 billion,” it said, adding that first-time house buyers made up 75 per cent of successful loan applicants (approximately 1.5 million borrowers).
On the suggestion that the maximum loan tenure be extended, BNM said the current 35 years is more than sufficient for borrowers to settle housing loans by retirement age.
“For example, if the housing loan is offered when the borrower is 25 years old, a financing tenure of 35 years would extend to the retirement age of 60,” it said.
Furthermore, BNM pointed out that increasing the loan tenure to 40 years would further add to the cost of financing without significantly improving the affordability of monthly instalments (see Table 1 and Table 2).
BNM’s hardline stance comes at a time when macroeconomic factors are raising the average cost of living and goods in the country. The central bank feels that in such a time, it is more prudent to focus on protecting the financial health of the rakyat at large.