Bank Negara imposes maximum loan-to-value (LTV) ratio of 70% for 3rd home loan

KUALA LUMPUR: Bank Negara Malaysia is imposing with immediate effect the maximum loan-to-value (LTV) ratio of 70% for the third house financing facility taken by a borrower as it seeks to curb "excessive investment and speculative activity in the residential property market".

The central bank said on Wednesday, Nov 3 the move was 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," it said.

Bank Negara said the financing facilities for purchase of the first and second 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,” it said.

Below is the entire statement issued by Bank Negara:

Measures in Promoting a Stable and Sustainable Property Market and Sound Financial and Debt Management of Households 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 third house financing facility taken out by a borrower.  

Financing facilities for purchase of the first and second 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.