Everyone dreams of owning a house, or preferably more than one, to fulfil the desire for a comfortable modern lifestyle.
That dream could take the form of a low-rise house with space for gardening, or a condominium within walking distance of the BTS or MRT for an easy commute. And if resources permit, a weekend getaway property in a beach town is nice to have.
There's nothing wrong with having a wish list, but affordability is another matter entirely. For first-time workers with little or no financial support from families, it is quite a challenge to resist impulse purchases and summon up the discipline to save up enough to place a down payment even for one home. Meanwhile, house prices continue to rise and diverge further from their income levels.
Banks are well aware of this and have been trying to help some of these dreamers. They have loosened their mortgage underwriting standards by granting loans to cover the full value of house prices -- a loan-to-value (LTV) ratio of 100%. Some people have secured mortgage loans without having to make any down payment, as long as they can provide enough proof of their debt-servicing ability to satisfy a loan officer.
Banks sometimes go a step further by lengthening loan repayment periods to 35 years from the standard maximum of 30, in order to reduce monthly instalments.
So even as banks facilitate home ownership on the one hand, they're extending household indebtedness on the other.
But the bottom line is that the lending industry no longer seems to distinguish between granting mortgage loans to those with genuine demand -- for a principal residence or first-time home purchase -- and for those seeking second homes or speculative investments.
Let's compare two individuals looking at the same condominium. One earns 100,000 baht a month and wants to buy a unit to rent out. The other earns 10,000 baht but would like to buy and really live there.
The bank will favour the high-income borrower, regardless of whether he or she really needs that property or is just searching for a better yield than other investments offer. Credit lines of this kind have in turn propelled artificial demand.
We are now seeing more people taking out second mortgage loans and then some. This dampens genuine demand, as the ease of obtaining mortgages drives up property prices further beyond the means of first-time homebuyers.
Real estate markets are sensitive to social trends and concerns about affordability. To prevent negative conditions from arising, several countries have introduced measures on residential mortgage loans, based on borrowing objectives and the number of outstanding mortgage contracts.
An LTV limit, setting a minimum down payment level in other words, is the most widely used measure to reduce the risk of a price bubble fed by speculative demand.
For example, in Singapore, first-time homebuyers must make a minimum down payment of 25% based on the property value, with an LTV limit of 75% imposed by the Monetary Authority of Singapore.
Borrowers with more than one outstanding mortgage face even stricter requirements. For instance, if you have two outstanding mortgages and are looking at a third property, you'll need to pay at least 55% down for that house or condo.
Other measures, such as stamp duties, are used to further curb speculative demand in overheating markets, as in the case of Hong Kong.
In the UK, while financial institutions have been cautious in not granting buy-to-let (BTL) mortgages with LTV limits above 80%, the Bank of England has decreed that the amount of a mortgage loan cannot exceed 4.5 times a borrower's annual income.
In a nutshell, the depth and breadth of LTV limits and other measures may differ across countries, depending on the context of problems each is experiencing.
The Bank of Thailand too has been attempting to curb artificial demand in the housing market and support housing affordability. Its new consultation paper proposes a minimum down payment of 20% for homebuyers with more than one outstanding mortgage and those purchasing residential properties worth at least 10 million baht, tentatively scheduled to take effect in January 2019.
The central bank is accepting submissions from the public in response to this proposal until Oct 22 at its website www.bot.or.th.
Maetinee Hemrit is the deputy director of the Financial Institutions Strategy Department with the Bank of Thailand. The views expressed are the author's own.