Below are few aspects that need to take note.
Almost every survey carried across our nation would spell out something obvious – affordability is a main or major concern for home buyers. Inevitably, affordability goes hand-in-hand with financing, unless you are paying for your home’s purchase with cash. In a recent talk by REHDA Institute titled “Property Developers: Everything you need to know about securing home loan financing for your buyers in 2016”, the speakers who are mainly from the banking industry, shed some interesting insights on the current state of financing and affordability.
Tracy Pan, Maybank’s Head of Mortgage Consumer Finance, Community Financial Services, covered macro perspective on mortgage home loans and related banking guidelines.
Key insights shared are as below.
🌟 Top 5 reasons for loan rejections: Lack of documentation, failed credit risk rating, poor CCRIS report, non-target segment/customer and failed borrower criteria 🌟
🌟 Lending approval rates for 2015: Ranged from 33.00 (lowest) to 89.40 (highest) 🌟
🌟 Malaysia’s home ownership rate: Latest available official figure is 72.5%, a relatively high number compared to some of the other developed countries 🌟
🌟 Industry impaired (terminology used to for NPL (non-performing loans): Figures are on the downtrend, meaning that borrowers are managing their credit better. As at December 2015, it is at 1.15% 🌟
🌟 Housing affordability: Terengganu, Kuala Lumpur, Pulau Pinang and Sabah falls into the Severely Unaffordable category, while the only state that falls into the Affordable category is Melaka. For Malaysia, the monthly median income is RM4,500 with annual median income of RM55,000 🌟
🌟 Understanding home loan / home financing – get your loan approved!
Banks in Malaysia are governed by the central bank, Bank Negara Malaysia. Over the years, there have been many changes in terms of financing. Tracy Pan also shared how banks assess and evaluate home purchasers’ credit.
To ensure responsible and transparent financing protection for both consumers and financial institutions, the banks will perform a credit check (CCRIS report), income supporting documents, debt service ratio (DSR) and also, net disposable income (NDI).
“NDI is a measure to ensure that home loan borrowers are able to live a standard lifestyle after all the loans commitment.”
Debt Service Ratio (DSR) is a measure to prevent borrowers from becoming over-indebted and to allow sufficient buffer for borrowers’ daily and essential expenditures.
🌟 DSR = Commitment / Net Income
Overall, the acceptable average DSR is 60%. There has been talk that some banks are lenient, going as high as 80% DSR and some are very conservative, going as low as 40% DSR.
🌟 Net Disposable Income (NDI)
This is derived from net income minus commitment. The NDI is based on the average in the banking industry. Urban refers to bigger and major towns. The urban borrower must be able to achieve a NDI between RM1,200 and RM1,500, upon deducting all loan commitments. You need to have between RM1,200 and RM1,500 to make sure that you are able to live through the entire month.
If you are living in Kuala Lumpur and Petaling Jaya with NDI of RM1,200 to RM1,500 per month, that amounts to approximately RM40 to RM50 spend per day.
🌟 Character / collateral financing
There isn’t any pre-approved housing loan anymore after the introduction of responsible financial guidelines. Character financing or collateral financing are types of financing that are applied as a form of mitigation. If the home loan borrower does not fulfill the guidelines, then the banks will look at character; whether the borrower is an existing customer or the types of asset or collateral they possess.
🌟 Required income documents / evidence
These are the minimum that banks need to be able to assess – for those who are gainfully employed or self-employed.
Examples of gainfully employed – salary earner with EPF contributions
- Director without shareholding
- Office worker
Examples of self-employed
- Director with shareholding
- Sole proprietor
- Business partner
- Multi-level marketing
- Insurance agents
- Real estate agents
“We (developers and bankers) can definitely work together to improve the approval rate by understanding how the banks assess credit of an individual or company.”
It is a continuous effort to ensure the sustainability of the mortgage business of the banking industry. So, good credit is one thing. You must have a good record, and show your ability to repay. If the bank is unable to substantiate the DSR and/or NDI accordingly, then the bank will explore further with you. You could provide other proxies (sources of income), get a co-borrower or get a guarantor to support your loan application.
🌟 Measures that can be taken to improve approval of home loans
- Have a good credit record by keeping all payments up to date on existing credit facilities / liabilities
- The ability to prove financial capability to make monthly payments
- Fully and accurately disclose all material information with regard to financial position when applying for a home loan
- Knowing how much you can borrow to purchase a property by checking with the bank. You may also want to consider getting pre-approved for a mortgage loan before looking at purchasing a property.
- First-time home buyers may also want to consider applying for Government schemes such as Skim Rumah Pertamaku and Skim MyDeposit (RM30,000 funded by the Government to assist on 10% deposit payment) for assistance in your property purchase
🌟 About REHDA Institute
REHDA Institute is recognised as the leading representative body for private property developers, being involved primarily in advocacy and governance. Being the sole national representative body for property developers, REHDA Institute plays a pivotal role in ensuring that developers’ views are heard by the relevant authorities and government agencies. REHDA Institute is highly regarded by both the public and private sectors for its commitment to nation building and betterment of life through sustainable property development.
Now that you know how the banks assess you as a borrower, ensure that you take the necessary steps to get your loan approved!