Easier to obtain loans is not the best option

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PropertyGuru’s country manager, Sheldon Fernandez has asked the government to relook current regulations on financing and lending, especially for first time home buyers. This would not be the first of such a call. It quoted its own sentiment survey which showed that the difficulty in obtaining bank loan approvals is a key area of growing dissatisfaction among home buyers and the most affected would be those in the middle income households who do not qualify for low-cost schemes but also find it tough to buy from the market because of financing issues.

To be very honest, one major reason why the 2008 mortgage crisis happened in the US was also because of easy financing. Everyone who wants to borrow to buy ever higher priced homes would get their loans. Banks were trying their best to get more loans as it would give them better profits. Well, when the music stops, the mortgage crisis happened. Yes, it is true that when speculators are the ones playing in the market, this would happen. However, if the first time home buyer is trying to obtain a loan which he can ill-afford to pay in the future? I think this will also cause the non performing loans to go up.

loansgrowthEvery bank would have their own valuations for the current homes in the market, including the new ones. That’s why many times if they feel that the house price is way beyond the usual market price, the bank would only loan lesser than the usual 90 percent. I think, this is still responsible lending. That’s why despite current slowdowns, we do not see banks stopping their lending. In fact, lending continues to grow, even if at a slower pace. Take a look at the chart showing clearly that lending is continuing thus far.

It is tough to convince the buyers to buy one level lower than what they would have loved. However, there are only two ways to go about it. The buyers need to beef up their own borrowing stats before applying or try and go for cheaper options which may require some sacrifice perhaps in terms of location and distance. The Bank Negara has also touched on this recently. Read here: Stay safe, buy within affordability and stop bubble building The market does not belong to only first time home buyers. The market should continue to offer stability and safety because if the market crashes, it would affect everyone and not just the first time home buyers.

The government has to shoulder more burden in building more affordable homes or find ways to push for more affordable homes from the private developers. Lowering lending standards should not be the first measure to be taken. Yes, I am taking my own advice. I moved to a lesser known and ‘faraway’ area just so that I can afford a huge condo with great facilities and priced below RM600,000 today. Thus far, doing fine. Sometimes, we just have to change our expectations and love our new expectations. Happy buying what we should afford in the first place.

written on 15 Oct 2015

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