Central bank says revised LTV rules will stay put

Central bank says revised LTV rules will stay put

The revised loan-to-value (LTV) regulations will remain in place to curb risks accumulating in the property sector, says the Bank of Thailand.

The central bank has continuously monitored and assessed the property sector since the revised LTV rules took effect in April 2019, said Nawaron Dejsuvan, assistant governor of the financial institutions policy group.

The confirmation of the LTV regulations comes after last week's meeting between government officials and property sector representatives. The latter submitted several requests, including annulment of the LTV curbs and a reduction of property transfer fees, according to Prop2morrow.com.

Based on central bank data, housing loans expanded by 4.4% year-on-year in the second quarter, up from the first quarter's 3.4%, despite the coronavirus crisis.

The uptick shows that the LTV regulations were not an obstacle for homebuyers to access mortgage loans and that financial institutions still provided new loans to borrowers with loan repayment ability, Mrs Nawaron said.

"The LTV regulations help mitigate Covid-19's impact on the property sector and the overall economy, as they help decelerate artificial demand and property supply," she said.

The central bank has loosened the revised LTV regulations twice to align with the ongoing circumstances, Mrs Nawaron said.

The first tweak, which went into effect in early 2020, shortened the minimum debt-servicing period for first mortgages for those seeking a second for homes priced below 10 million baht.

Under the amended regulation, the minimum down payment for a second mortgage for homes valued at less than 10 million baht is 10% if the borrower has serviced the first mortgage contract for at least two years, and 20% if the first mortgage has been paid down for less than two years.

Another tweak is lowering the minimum down payment for first mortgages for homes valued at 10 million baht or more.

Those who buy a residence valued at less than 10 million baht and apply for a first mortgage are also allowed to take out a top-up mortgage of up to 10% in addition to the housing loan, constituting as much as 110% for the mortgage bundled with the top-up.

The central bank introduced revised LTV rules in April 2019 in order to prevent phoney demand for mortgage loans.

According to the revised LTV regulations, 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.

The LTV ratio of 90-100% remains unchanged 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.

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