Ironing out confusion in home scheme

KUALA LUMPUR (Nov 1): Deputy Finance Minister Datuk Donald Lim's recent remark regarding the possible increase of the income eligibility under the My First House Scheme from RM3,000 to either RM6,000 or RM7,000 has stirred debate and raised questions.

The hike in income eligibility was to be in tandem with the increase disclosed in Budget 2012 of the price ceiling of houses bought under the scheme from RM220,000 to RM400,000.

Many questioned whether the scheme would meet its objective if the income eligibility of an individual was raised to such a high figure. And there was also confusion if the likely new salary caps apply to individuals or couples.

According to the website, the scheme is targeted at those below the age of 35 who are earning less than RM3,000 in monthly gross income. It was first launched in Budget 2011.

Sources said last year, 300 applicants and about RM25 million in loans were disbursed to approved applicants under the scheme.

The scheme allows applicants from the private sector to apply for 100% financing for a maximum tenure of 30 years. The houses are to be priced between RM100,000 and RM220,000, and loans could be applied from banks participating in the scheme, such as OCBC Bank (M) Bhd, RHB Bank Bhd and Hong Leong Bank Bhd.

"Essentially, this scheme helps low-income earners to purchase their first homes by making full (100%) financing available to them," said Thoo Mee Ling, head of secured lending at OCBC Bank, in an email. "The current norm is for house buyers to come out with at least 10% of the cost of the house, which makes it virtually impossible for young adults to purchase a home sooner rather than later."

Thoo said Cagamas Bhd provides the 10% guarantee while the government pays the guarantee fee to enable the borrower to take up the 100% loan from the bank.

He added that the scheme would only be beneficial if property prices were within the RM100,000 to RM220,000 range. Looking at current property prices, the range tends to go beyond the upper limit, especially in the Klang Valley.

According to a source, the government took note of this qualm and decided to revise the ceiling of the scheme from RM220,000 to RM400,000 in Budget 2012.

Many assumed that the hike in the limit was intended for individual applicants of the scheme (rather than couples or households) and questioned how a fresh graduate earning RM3,000 a month could get a loan for a RM400,000 home.

At the launch of Kurnia's mobile application on Oct 19, Lim said the government was considering revising the income eligibility of the scheme and to raise it to either RM6,000 or RM7,000.

As there are not many houses costing below RM220,000 available in the Klang Valley, the increase in the price ceiling was raised. It is for this reason the government has decided on the RM400,000 ceiling price for joint loans by husband and wife. This is stated in Budget 2012 in paragraph 75 as follows: "This improved scheme will be available to house buyers through joint loans of husband and wife beginning January 2012."

This means that two individuals each earning a gross income of RM3,000 or less could apply for a joint loan and that the "monthly financing repayment must not be more than one-third of the borrowers' monthly combined gross income".

For a RM400,000 loan with an interest rate of 4.3% and a 30-year tenure, the monthly instalment will be RM1,979. To meet the one-third monthly instalment, the borrowers must earn at least RM5,937 (an example by Thoo).

"In the Klang Valley, cost of homes is in excess of RM300,000 for properties that are more conveniently located. With the increase of the pricing limit to RM400,000, first-time buyers will be able to find a wider range of properties to choose from to meet the criteria to qualify for this scheme," said Thoo.

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