Sunday, July 21

Higher LTV ratio to have drastic impact on mortgage loans demand


KUCHING: The banking industry is expected to face a drastic impact on mortgages loans demand following the announcement of the higher loan-to-value (LTV) ratio for financing third properties and onwards.

According to OSK Research Sdn Bhd (OSK Research), the higher LTV ratio on financing the third property and onwards was aimed at curbing the degree of speculation currently being experienced by industries.

However, banks, via the Central Credit Reference Information System (CCRIS), would be able to detect if a borrower was driven by speculative intention, especially if he/she had purchased multiple properties within a short time span.

In such cases, OSK Research said that banks with proper risk management would have already pre-empted such risks by lowering the LTV for those financing facilities.

The research house stated that property purchasers might also be able to circumvent the new ruling by purchasing property under their children or spouses’ names while acting as guarantors to the loan.

It further added that property developers could raise prices while providing rebates to partially blunt the impact of the higher LTV ratios.

The research house observed the strong loans growth in the property segment coupled with a surge in working capital loans over the past five months had elevated year-to-date (YTD) annualised loans growth to a much stronger 11.8 per cent compared with the research house’s market estimates of nine per cent to 11 per cent.

As such, even with the assumption that residential property loans growth moderated by 50 per cent due to Bank Negara Malaysia’s (BNM) more stringent credit lending restrictions, the research house could still see total industry loans growth coming in at 10 per cent to 10.5 per cent, which was at the upper end of market estimates.

The research house highlighted that loans for residential properties contributed to 25 per cent to 30 per cent of total industry loans growth over the past six months, but the strong recovery in working capital and non-residential property loans grew significantly over the past three months, contributing to 16 per cent to 23 per cent of total industry loans growth, compared with six per cent at the beginning of 2010.