Crucial for borrowers to review their own affordability, says Association of Banks

KUALA LUMPUR (JULY 21): The Association of Banks in Malaysia (ABM) today reiterated that its member banks have been providing, and will continue to provide, home loans to eligible borrowers.

From January to May 2017, commercial banks approved over RM25.7 billion and disbursed in excess of RM24.6 billion in loans for the purchase of residential properties. Housing loans form the single-largest component of commercial banks’ total loan portfolio, representing 34.4% of the total outstanding loans as at end-May 2017, according to ABM’s media release in response to recent calls to relax the criteria for potential buyers of affordable housing.

“It is observed that the rejection of housing loan applications cuts across all income ranges but trends higher among the lower- to middle-income group due to smaller disposable income relative to the new and existing monthly commitments,” ABM said.

It added that generally, the types of properties that this category of applicants looks for are terraced houses and apartments. Apartments are especially popular in the key urban areas in view of the relatively lower pricing. It is therefore crucial for all borrowers to review their own affordability in line with their financial circumstances.

“For homebuyers, especially in the case of owner-occupier mortgage applicants, banks typically have products to offer that match the buyer’s affordability and income level,” ABM stressed.

Home financing products offered by the banks include features such as flexibility in managing the amount and frequency of loan repayments, combination of term loan and overdraft financing, and optional redraw facility.

There are also specific loan products introduced by the banks for the various government schemes such as the Housing Guarantee Scheme by Syarikat Jaminan Kredit Perumahan Bhd, schemes for selected affordable housing projects (such as Rumah Selangorku and RUMAWIP), Skim Rumah Pertamaku and PR1MA special end-financing scheme. Rent-to-own schemes (part of the PR1MA housing initiative) are also available.

“The suite of housing loan products from commercial banks offer an array of financing options that are tailored for borrowers with different levels of income to purchase all types of residential properties, including affordable housing. Consumers are thus strongly encouraged to discuss and work with their financiers for a financing package that best suits their needs,” ABM shared.

ABM also explained that its member banks have not deviated from their usual approach to the screening of loan applications. The main reasons for the applications being rejected would include high debt service ratio, adverse credit history, insufficient income, repayment capacity has yet to be established and weak documentation or banking records.

“While banks look to grow their businesses through the growth of their loan portfolios, they are also cognizant that loans extended must be viable to protect the interest of their depositors. They are also guided by regulatory guidelines as well as internal credit policies to ensure that borrowers are not unduly burdened by their financial obligations,” ABM concluded.