BNM cautions against overly lenient housing loan policies
Bank Negara Malaysia (BNM) has raised concerns that overly lenient housing loan policies could undermine affordability and destabilize the property market. The central bank highlighted that relaxed financing conditions, such as extended loan tenures and speculative buying driven by easy credit access, significantly contributed to housing price surges between 2012 and 2014.
During this period, house prices increased at an average annual rate of 10.1%, outpacing income growth and making homeownership challenging for many Malaysians. Additionally, household debt levels and speculative activity in the housing market spiked, with many borrowers taking on multiple housing loans.
In response, BNM implemented measures to curb speculative buying and temper the housing market. Key regulations included a 70% loan-to-value (LTV) cap for borrowers with more than two outstanding housing loans and a maximum loan tenure of 35 years. These measures have successfully moderated house price growth to a more sustainable average of 5.3% between 2015 and 2019.
BNM emphasized that while extending loan tenures may reduce monthly repayments and make houses appear more affordable in the short term, it could lead to higher overall financing costs and increase household indebtedness. Prolonged loan periods also risk further fuelling property price inflation, making housing even less accessible for future generations.
The central bank encourages borrowers to carefully evaluate financing options and choose loan terms that align with their financial capacities. While financing conditions influence affordability, BNM noted that structural factors such as inadequate housing supply, mismatched pricing relative to household incomes, and stagnant wage growth play more significant roles in housing price trends.
Government initiatives aimed at increasing household incomes, improving housing supply, and developing a robust rental market are critical measures to address Malaysia’s housing affordability crisis holistically.
Datuk Chang Kim Loong, honorary secretary-general of the House Buyers Association (HBA), cautioned against high loan coverage schemes, such as 120% loans, which might seem helpful but could burden buyers with higher repayments over time. He advised prospective buyers to exercise caution and conduct thorough due diligence before proceeding with such arrangements, emphasizing that there is no “free lunch” and that buyers will ultimately pay significantly more over the loan’s tenure.
Chang reminded house buyers that the cost of purchasing a home extends beyond the 10% down payment, urging them to prepare an additional 10% to cover legal fees, stamp duty, and other ancillary costs. He also advised against taking loans for renovations and electrical applications, suggesting that such expenditures should remain within one’s budget to avoid additional financial burdens.
He stressed that offering higher loans does not solve the affordability issue and only encourages buyers to take on additional debt, exacerbating their financial burden in the long run. Chang advocated for reducing house prices to address affordability, rather than extending loan tenures or increasing loan amounts. He suggested that individuals without the initial down payment should consider renting, which carries less risk compared to committing to a long-term housing loan.
Chang warned that higher loan offerings could lead to increased house prices, as buyers who previously could not afford such homes might now qualify for larger loans. However, he cautioned that qualifying for a loan does not guarantee the ability to maintain repayments while sustaining a reasonable quality of life. He added that individuals opting for high loan schemes often lack an understanding of financial management and may not be responsible borrowers.
To address housing affordability, Chang recommended that the government provide financial incentives to developers to build more affordable homes, priced between RM150,000 and RM300,000, and reduce red tape and the cost of doing business to facilitate the construction of such housing.
