Miniature models of houses on display at a recent property fair in Bangkok. (Photo: Varuth Hirunyatheb)

The Housing Finance Association expects the recent policy rate cut by the Bank of Thailand will have a greater effect on mortgage holders than potential home loan applicants, as consumer purchasing power remains weak.

According to Alongkot Boonmasuk, secretary-general of the association, the central bank's policy rate cut of 0.25 percentage points to 2.25% will primarily help current mortgage customers by reducing their monthly instalments.

A lower interest rate decreases principal payments and shortens the loan maturity period, he said.

In addition, Mr Alongkot said the rate cut should help boost confidence among consumers with real demand for housing, encouraging them to proceed with home purchases after many delayed their decisions. However, the rate cut is unlikely to significantly stimulate housing market demand, he said.

"The rate reduction helped improve sentiment among both property developers and homebuyers," said Mr Alongkot.

"We are hoping for further rate cuts and government stimulus measures supporting both the property sector and mortgages."

Mortgage products, which typically have floating interest rates, will benefit more from the rate cut than consumer loans, which often have fixed rates, he said.

On average, a one percentage point reduction in interest rates reduces the financial burden of a mortgage by 7-8%, said Mr Alongkot.

Major banks recently announced reductions in their loan rates across the board.

Banks cut their minimum retail rate (MRR) by 0.12-0.125 percentage points, effective from November.

A banking industry source who requested anonymity said the rate cut would support real homebuyer demand, particularly for those who postponed purchasing decisions while waiting for lower rates.

"There is a significant number of homebuyers who have real demand, purchasing power, and the ability to repay debts. However, they lacked confidence," said the source. "The rate cut is expected to boost consumer confidence."

The source said despite the improved sentiment, the rate cut is unlikely to significantly increase housing expansion for the remainder of the year, given several constraints.

Banks have slowed loan growth, selectively approving mortgage applications amid high levels of household debt and sluggish economic growth.

The government's soft loan package for housing, which primarily targets lower-income homebuyers seeking to purchase homes priced between 1-3 million baht per unit, still lacks clear details, said the source.

In addition, the Bank of Thailand has not signalled the start of a sustained rate-cutting cycle, said the source.

The market is watching for future policy rate moves, with the Monetary Policy Committee expected to hold the rate steady at its next meeting in December. Another rate cut may occur in the first quarter of next year, the source noted.