Bank of Thailand mulls relaxing LTV rule
Co-signer condition likely to be dropped
The Bank of Thailand is considering relaxing the loan-to-value (LTV) regulations governing mortgage lending by refraining from requiring co-signers.
The central bank has considered a raft of proposals from property developers to ease the LTV requirements, with an end to the co-signer rule likely the only one to change, said Ronadol Numnonda, deputy governor for financial institutions stability at the Bank of Thailand. Co-signers typically do not have an ownership interest in the home being purchased.
"The issue is justified," Mr Ronadol said. "The central bank is considering it and expects to make a decision soon."
Last week, the committee for real estate development met with central bank officials to voice concerns over the impact of the down payment regulations on homebuyers and the property sector.
The committee had requested the central bank relax the LTV regulations in several issues, including a temporary suspension of enforcement until the economy recovers.
Moreover, the committee also proposed that the LTV curbs be used specifically in risk-prone segments rather than across the board, while tougher measures in the areas of appraisal prices and co-signers were urged to be modified because the new measures deter potential co-signers from joining the loan agreement.
Homebuyers, starting from April 1, are required to make a minimum down payment for third and subsequent mortgages of 30% of the home price, with second mortgages set at 10-20%, depending on how long a borrower has made payments on the first one.
The LTV ratio of 90-100% remains unchanged for those planning to buy a home priced below 10 million baht, but the ratio is lowered to 80% when the borrower buys a residence valued at 10 million baht or higher.
Some developers earlier expressed concerns that the new LTV requirement would make it more difficult for co-signers who are not real buyers to access housing loans to fund their own home purchase in the future, as their borrowing is considered to be a second mortgage that requires a higher down payment.
Mr Ronadol said second and subsequent mortgages have continued to decline after the central bank's tougher LTV rules came into force, reflecting that artificial demand is subsiding.
But the measures need close monitoring in terms of the benefits and impacts, he said.
According to central bank data, new mortgage contracts fell by 2.4% year-on-year during the April-to-June quarter after surging 27.9% in the previous three months.
For January to June, first-home mortgage loans saw a 14% expansion, but the 13% contraction in second and subsequent mortgage loans stemmed mainly from ebbing mortgages in the high-rise residential segment.
Second and subsequent mortgages for high-rise residential projects declined 24.8% during January to June, while loans for detached houses grew 3.3% in the same period.