BoT eases mortgage LTV ratio

BoT eases mortgage LTV ratio

Move aims to boost property sector

The Bank of Thailand (BoT) has further eased the loan-to-value (LTV) ratio for mortgage lending to allow homebuyers to borrow loans of up to 100%, aiming to help boost the property sector and help the economy recover from the impact of the Covid-19 pandemic.

The temporary relaxation is effective as of Oct 20 this year until the end of next year. It allows the banks to approve housing loans for borrowers of up to 100% of the total home value for all types of mortgage loan contracts.

The BoT also allows an LTV ratio of up to 110%, with a combined mortgage loan and top-up loan for home decoration for a first home priced below 10 million baht.

However, it depends on the bank's final analysis to grant loans to borrowers on the 100% LTV ratio, despite the rule easing, said Roong Mallikamas, the BoT's assistant governor for financial institutions policy group.

Previously, the central bank had limited the mortgage loan LTV ratio since 2019 for a first home priced below 10 million baht per unit of up to 100%, and 90% for a first home with a minimum price of 10 million baht.

For all home prices, the BoT limited the LTV ratio to 80-90% for a second home, and 70% for a third home.

Mrs Roong said the relaxation is in line with no signs of speculative behaviour in the local property sector because of the sluggish real estate market amid the economic doldrums due to the pandemic.

Several countries have also relaxed LTV regulations to revive their property sector and economy in preparation for recovery in the post-Covid era.

Don Nakornthab, the BoT's senior director for financial stability department, said the central bank expects the LTV relaxation would help to generate new mortgage loans valued at around 50 billion baht for the next year.

The relaxation will gradually support the recovery of both the real estate sector and its supply chains, including building and construction, raw materials, electrical appliances, furniture, rental residence, advertisement and financial businesses.

The easing will also help maintain employment in the real estate sector and related industries, which account for almost 10% of GDP.

However, the local property sector is expected to take a longer time to recover compared with the overall economy. The Thai economy is expected to gradually pick up after bottoming out in the third quarter of this year.

"The central bank assesses that the economy would start recovering in 2022, while the property sector is expected to pick up in 2025 as its decline is deeper than that of the economy," he said.

Mr Don said the central bank is not too concerned with the mortgage non-performing loans (NPLs) after easing the LTV rules.

The commercial banking sector put the housing loan bad debt ratio at 3.66% in the second quarter of this year, declining from the previous quarter.

Even though Thailand has seen a higher household debt ratio, the amount is largely from personal loans and credit cards rather than mortgages. Thailand's housing loan represents 34% of total household debt, lower than the 40% of the Philippines, 52% each for Malaysia and South Korea, 66% for Hong Kong and 75% for Singapore.

Piya Prayong, chief executive of housing developer Pruksa Real Estate, a subsidiary of SET-listed Pruksa Holding Plc, said easing the LTV rules could help boost the market by at least 20%.

"After the lending curbs started on April 1, 2019, the housing market dropped 10% that year," he said.

"The fallout from the Covid-19 pandemic caused a further market contraction of 30% last year."

He said the temporary easing which will end on Dec 31, 2022 will help accelerate homebuyers' decision-making.

Mr Piya added low-rise houses would benefit from the unlocked LTV as the construction period was short.

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