Banks tighten housing loans

Banks make it more difficult to get loans to prevent speculation, with rising household debt & economic slowdown.

Banks tighten housing loans

Lending ratios and mortgage numbers cut

15/07/2013 

Lenders have tightened their mortgage criteria by cutting loan-to-value (LTV) ratios to prevent speculation in the wake of high household debt and an economic slowdown.

To limit risks, United Overseas Bank (Thai) (UOBT) has lowered the LTV rate - the ratio of a loan to the value of an asset purchased - to 80% from 90% for housing units priced 10 million baht or more.

Kasikornbank (KBank) has also slashed the rates to a range of 75% to 80% from 90% to 95% for third-home borrowing, while TMB Bank (TMB) has cut its LTV rates to 70% from 90-95% for second mortgages and vacation homes.

The voluntary moves indicate banks have started applying more stringent requirements to not only lower-income earners but also higher-income groups after the central bank repeatedly warned of the risks stemming from rising household debt and signs of a property bubble.

The Bank of Thailand first announced compulsory minimum LTV ratios on mortgages in 2011 to cool down growth in the property sector amid oversupply worries.

It set the minimum LTV ratios at 90% for condominiums priced up to 10 million baht a unit and 95% for low-rise residences - single houses, duplexes and townhouses.

This means buyers have to make 10% and 5% down payments respectively before they can take out loans.

UOBT's LTV reduction was aimed at avoiding property speculation amid liquidity concerns for high-value assets, said Yuttachai Teyarachakul, executive vice-president for personal financial services.

He said UOBT approves loans up to 95% of the value for first-time mortgages, 90% for second ones, and 70% for third ones. As a rule, it limits loans to third mortgages for each borrower.

UOBT's mortgage portfolio is 70 billion baht at present and those who earn 40,000-50,000 baht a month make up a lion's share.

With incomes at such levels, they are qualified to buy residences priced around 3-5 million baht each.

Mr Yuttachai added UOBT has joined its conservative peers in scrapping zero-percent mortgages, a marketing tool banks use to attract borrowers.

The move is in response to the Bank of Thailand's new rule which requires commercial banks to disclose the effective interest rate and total burden of interest, fines and other charges that may be incurred throughout the term of a mortgage product. Starting Aug 1 this year, the information must be included in their advertisements and potential customers must be informed of it before signing loan contracts.

As well, KBank on June 17 this year reduced its LTV rates to 75-80% from 90-95% for third-home mortgages, its limit for each borrower.

TMB has also cut the LTV ratio for second mortgages and vacation homes to 70% from the normal levels at 90-95% for the same reason, said executive vice-president Kanchana Rojvatunyu.

Besides, the bank has focused on extending mortgages to homes priced 1-2 million baht a unit.

Unlike others, Bank of Ayudhya has not changed its LTV ratio but has limited lending to three mortgages for each borrower.

Several negative economic indicators, especially tepid domestic consumption and rising household debt, have prompted the bank to be more prudent with consumer loans, said Thakorn Piyapan, managing director of Krungsri Consumer, an unsecured loan unit of Bank of Ayudhya.

Its main concern now is customers who earn less than 10,000 baht per month as daily expenses have increased on the back of higher living costs and goods prices while household debt burden has skyrocketed.

Krungsri First Choice, a personal-loan brand under Krungsri Consumer, allows earners of less than 10,000 baht a month to apply for loans.

"We mainly take into account their ability to repay debts on a case-by-case basis," he said.

http://www.bangkokpost.com/print/359865/