Bank of Thailand use the new 'home loan' criteria

The Bank of Thailand announced regulations for housing loans. By tightening the loan to value ratio (LTV). For the purchase of the second and third houses or a house with a value in excess of 10 million baht. Which has been effective since 1 April 2019, with details as follows

Property price

Contract number

% Loans

Down payment

Less than 10 million baht

1 1st house

2 By paying the first house for 3 years or more

2 By paying the first house less than 3 years From the 3rd house onwards

 

90 – 95%

90%

80%

70%

5 – 10%

10%

20%

30%

From 10 million baht up

1 – 2

From the 3rd house onwards

80%

70%

20%

30%



In addition, the bank will provide home loans. Credit lines granted to customers must include Top-up loans (additional loans) that use the same collateral in the same amount that customers request for loans, such as loans for furniture purchases. To decorate the house must not exceed 100% of the collateralized securities. But not including loans to pay life insurance premiums, non-life insurance which helps protect the risk of both borrowers and financial institutions. And loans granted to SMEs in order to support access to funding for small entrepreneurs.


For example, Mr. A wants to buy a second home with a value of 5 million baht and the first house has been paid for less than 3 years. According to the new rules, Mr. A must prepare a 20% down payment of the house value of 1 million baht and the bank will be able to provide loans up to 80% of the home value, not more than 4 million baht. In this case, if the bank gives a home loan of 4 million baht, the bank can give an additional loan of not more than 1 million baht. This limit does not include loans to pay life insurance premiums, non-life insurance, and loans for SMEs, meaning if you want to borrow more money to buy life and non-life insurance can be done. But also depends on the bank's consideration.

Why does the National Bank have to issue regulatory measures this time?

  1. There is growing competition in housing loans in the past. While the credit underwriting standards began to decline, for example, there is no down payment required before borrowing.
  2. Begin to see signs of speculation that housing that has not been bought to live more. This is an over the competition in the credit market is a catalyst for speculation in the real estate sector. May pose a risk to stability and the economy in the future
  3. Without proper supervision, it may create risks and weaknesses in the financial and economic system. And past lessons of countries around the world indicate that the problem in the real estate sector is often one of the leading sources of global economic crisis.

What effect does this regulation have on anyone?

  1. People who buy to stay (Real Demand) in the short term, only those who have houses that are not fully paid and want to buy more real estate after 1 April 2019 onwards. Including those who buy a house for a price of 10 million baht or more, must prepare an additional down payment. But in the long run, consumers will be able to buy houses at a more reasonable price because the demand for real estate for speculation will decrease. However, those who bought the first house for a real living will not be affected by this regulation.

  2. People who buy for investment, in the short term, those who are about to transfer their houses after April 1, 2019, will have to prepare more money. But in the long run, investors will have a better ability to take risks. Do not look at the risk of investing in real estate undue and reduce the chance of being impacted by the decline in real estate prices because the market will be more stable.

  3. Real estate operators, in the short-term, sales may drop because of reduced purchasing power because consumers will be less able to recover. And must spend more money on his own. May causing delay decisions but in the long run, entrepreneurs will be able to make appropriate investment plans. And reduce the risk of creating a real estate bubble.

  4. Financial institutions, in the short-term, a credit will be reduced. But in the long run, the debtors will have better quality. And the burden of reducing bad debt provision

  5. The Thai economy will be more stable. The chance of the economic crisis from the real estate bubble decreasing which will contribute to sustainable growth.

In short, the purpose of this criterion improvement is to look after the people who want to buy a house, to get a house at a reasonable price. At the same time, raising the level of credit standards of financial institutions. And prevent systemic risks in order to prevent the economic crisis.

               

Article by: Nipapan Poonsatiansup,

CFP® Dependent Financial Planner