KUALA LUMPUR (March 30): Against the backdrop of low interest rates domestically and globally, there have been limited signs of credit-fuelled speculative investments in the housing market, according to Bank Negara Malaysia (BNM).

In its Financial Stability Review for the second half of 2021 report published on Wednesday (March 30), the central bank said on an annual basis, the growth in housing loans taken by owner-occupiers continued to outstrip that by household investors. 

BNM also shared that credit risks are typically higher among household investors who are more likely to default if their housing loans fall into negative equity or when faced with a loss of rental income. 

“Banks have maintained prudent lending standards when financing household investors by applying lower debt service ratio (DSR) and loan to value (LTV) ratios, compared to borrowers who are owner-occupiers.

“About 75% of household investors are those earning more than RM5,000 per month. Meanwhile, new financing extended to household investors earning below RM5,000 per month are largely associated with house purchases in the lower and mid-priced market segments (below RM500,000).

“Risks of a sharp correction in house prices in this market segment are generally lower, given sustained demand,” it said. 

Overall, total bank exposures to investors with impaired loans or in a negative equity position remained low. 

Meanwhile, BNM also highlighted that housing unaffordability remains a major barrier for households to access home financing. 

“Broader reforms to improve housing affordability therefore remain important to reduce the debt burden of households, in line with what they can afford and avert risks of future financial hardship,” it shared. 

The central bank added that credit risks from first home buyers are partly mitigated by mortgage guarantees and prudent loan affordability assessments carried out by the banks. 

“In particular, prudent loan affordability assessments remain crucial in averting long-term financial hardship and exclusion, which can result from households losing their homes to foreclosure,” it highlighted. 

Edited by Lam Jian Wyn

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