Bank of Thailand prepared to ease LTV constraints
Bank, ministry talk about relaxing regs
The Bank of Thailand stands ready to further ease the loan-to-value (LTV) regulations governing mortgage lending in areas that are considered harmful to homebuyers, says the central bank's chief.
The central bank has been monitoring the outcome of the LTV measures after implementation on April 1, 2019, and relaxation will be mulled if needed, said Bank of Thailand governor Veerathai Santiprabhob.
"If any rule is too tough or leads to many side effects, the central bank is ready to relax it," he said. "The Bank of Thailand supports people owning their own homes but wants to eliminate artificial demand in the market."
The central bank recently allowed mortgage co-signers to no longer comply with the regulations.
According to the regulations, banks are allowed to offer an LTV of 100% for mortgages for buyers of low-rise residential projects taking out their first mortgage.
Homebuyers 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.
An LTV ratio of 90-100% is a must for those planning to buy a home priced below 10 million baht, but the ratio drops to 80% when the borrower buys a residence valued at 10 million baht or higher.
For the first 11 months of 2019, both commercial banks and specialised financial institutions delivered 6.3% growth in housing loans. Low-rise residences showed a 11.8% rise, while high-rise ones shrank 7.4%.
For commercial banks alone, first-contract mortgage loans grew 3.1%, with a 5% increase in mortgages for low-rise homes and a 1.9% decrease for high-rise. Second- and subsequent-contract housing loan growth declined 17.4%, mainly due to a 25.3% slump for high-rise projects and a 10.4% decline for low-rise houses.
Based on the data, the LTV curbs have helped stem property speculation. Banks have also been more cautious about housing loan approval, and, most importantly, homebuyers with real demand have been unaffected, Mr Veerathai said.
Ronadol Numnonda, deputy governor for financial institution stability, said the central bank has talked with the Finance Ministry about relaxing the LTV rules.
Several proposals are on the table, but nothing has been finalised. A conclusion is expected to be reached this month.
Mr Veerathai said the baht has settled since the start of the year as investors no longer regard the currency as a safe haven. Analysts expect sideways movement amid heightening global uncertainty.
"The country's economic slowdown and the global uncertainties make it more difficult for investors to park money in the Thai market for short-term purposes," Mr Veerathai said. "Capital outflows have exceeded inflows, suggesting the baht has not been a safe haven for a while."
External uncertainties, especially escalating geopolitical risk between the US and Iran, are sparking foreign exchange movement worldwide.
Mr Veerathai said a spike in oil prices is expected amid US-Iran tensions, making it a suitable time for Thailand to reserve energy.
Oil imports will also help lower the current account surplus and balance the baht against the dollar, he said.