Thursday, November 4, 2010

BNM Announces 70% LTV For 3rd Mortgages

I’ve been travelling this morning, so posts will be running late today.

As rumoured last week, BNM has announced curbs on property lending, but only for people carrying more than two mortgages:

Measures in Promoting a Stable and Sustainable Property Market and Sound Financial and Debt Management of Households

Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the third house financing facility taken out by a borrower. Financing facilities for purchase of the first and second homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies…

…In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature.

The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations…

…As part of the continuous efforts to raise the level of financial literacy and to promote sound financial and debt management by Malaysians, Bank Negara Malaysia also wishes to announce the introduction of the Financial Capability Programme…The Programme is aimed at equipping individuals with important knowledge for responsible financial decisions by gaining practical understanding and skills in money and debt management. …Individuals particularly new prospective borrowers and young adults are strongly encouraged to participate in this specially designed programme. The details of the implementation of the Financial Capability Programme will be announced later in December this year.

15 years ago, this kind of targeted policy would not have been possible. Now, credit information on borrowers is consolidated across the entire banking system, so banks can check a prospective borrower’s entire credit exposure.

What’s the impact of this new move? I’m tempted to say that speculation will definitely die down, but there’s just too little information publicly available to make that determination.

Actually, I’m just as interested in the Financial Capability Programme. It’s an obvious step to make, but I’m dubious of the potential impact, especially since its voluntary. As I’ve stated before, I believe this is something that really ought to be incorporated into the education curriculum proper for maximum impact, where virtually every child will be exposed to financial concepts. The FCP is like an afterthought, however well intentioned.

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