Following the pandemic, there has been a surge in the rejection rate of housing loan applications, attributed to would-be homebuyers' weakened debt repayment capability, stemming from the sluggish economic growth and higher cost of living.
According to Alongkot Boonmasuk, secretary-general of the Housing Finance Association, the current average rejection rate exceeds 50%, compared with a rate below 50% before the pandemic.
This surge has been driven primarily by lower-income earners purchasing homes priced below 3 million baht per unit.
Nevertheless, Mr Alongkot said the rejection rates for middle to upper residential projects with a minimum price range of 5 million baht to above 7 million baht are below the 50% mark.
"In the aftermath of the pandemic, incomes have risen marginally or remained stagnant in contrast to a significant uptick in house prices, the cost of living and interest rates. This scenario is undermining the purchasing power of lower-income [would-be] homebuyers," noted Mr Alongkot.
In order to mitigate risk, banks are directing their focus towards the middle to upper-income segment, specifically targeting would-be buyers of homes with a minimum price of 5 million baht and above 7 million baht.
The monthly income requirement for these homebuyer segments ranges from 50,000 baht to 70,000 baht, respectively.
According to data from the Bank of Thailand, the non-performing mortgage loans of the banking sector increased to 3.33% in the fourth quarter of 2023, up from 3.24% in the previous quarter.
This rise is predominantly attributed to low-income borrowers earning less than 30,000 baht per month and purchasing homes with a unit price below 3 million baht.
Kris Chantanotoke, chief executive of Siam Commercial Bank (SCB), said the bank is concentrating on house prices of at least 5 million baht in its mortgage loan business.
Given the ongoing economic uncertainty and household debt pressure, the bank is prioritising risk control over loan growth this year.
SCB, the country's fourth-largest lender by total assets, plans to selectively grow its housing loan portfolio through collaborations with big developers, enabling the bank to screen and attract quality customers.
In a separate development, Piti Tantakasem, chief executive of TMBThanachart Bank, said his bank is also focusing more on the middle-income segment for mortgage loans, targeting houses priced around 3-5 million baht.
Despite increasing interest rates, the bank remains confident that homebuyers with financial discipline can still access loan products, with various options available to manage their financial costs.
"Typically, banks provide fixed-interest rate mortgage loans for the first three years, followed by a switch to a floating rate from the fourth year. Customers with a good payment record have the option to choose debt refinance programmes to alleviate the financial burden when transitioning to a floating rate," he said.
For homebuyers who have the ability to purchase a house priced below 3 million baht, Mr Piti suggested specialised financial institutions offer an alternative avenue for them to access mortgage loans.
People examine deals on offer at a recent property fair. Photo courtesy of Houseandcondoshow Facebook page