Who is a mortgage slave? We could briefly say that these are the people who owe the banks lots of money for their property purchase and is currently paying for it by using a lot of their monthly salaries every month. How much is considered a lot? According to an article as early as 2006 in South China Morning Post (read here) Briefly, it said, “The latest catchphrase on the mainland is ‘housing serf’ – referring to people who must spend at least half their income on their mortgages.” Yes, 50% of their monthly income is used only for mortgage repayment. However, on a more recent basis, the term mortgage slave refers to homeowners who spend more than 70% of their disposable income towards repaying mortgage loans. Read here.
I think 70% should already be maximum because any higher meant there’s not much left for all other expenses including transportation, food and pocket money for movies? So, do we have mortgage slaves in Malaysia? Statistically, we have none (unless someone did it illegally somehow.) The reason is because no banks would approve our loan application if the home mortgage payment itself is already 70% of our monthly income. The typical Debt Service Ratio (DSR) which the bank will approve is around 70%. This is for TOTAL debt service including for our car loan and any other instalments. That’s why we should buy a home first before starting to pay that instalment for a new smartphone over 24 months.
Another reason why we have none is also because the developers would also not want to build a home where the starting price is already 70% of the income of most Malaysians. Here’s an article about the median household incomes in Malaysia. I think they will see it as way too risky. This is why the median price for all new launches within the past few years are already inching downwards. Instead of towards RM700,000 just few years ago, it is now below RM500,000 as much as possible. They are doing this by building smaller units (price per sq ft) or in less popular areas where the land cost is lower. (they cannot cut construction cost because that’s quite standard)
We also do not have mortgage slaves because the government is looking into so many ways to help Malaysian households owning a home without burning their pocket too much. Home Ownership Campaign 2019 is one. They are also building 100,000 new affordable homes every year and targets to build 1 million new affordable homes within 10 years. (earlier article here) Even Bank Negara Malaysia (BNM) is also helping too. They have a RM1 billion fund to help the lower income group to buy their first home. (read here). The home prices are already moderating too. Look at the stats and we could see that home prices are actually rising lower than the salary increments already. My wish is for this situation to continue so that more Malaysians could get their first-home. At the moment, we do not have any meaningful number of Malaysians who could be defined as mortgage slaves. Happy following.
<Featured Image is courtesy of Stock Photos from By Alexander Shatilov>
written on 1 April 2019
Next suggested article: RM10 million property. Anybody? What’s the mortgage like?