A visitor browses a board advertising housing projects. (Photo by Patipat Janthong)

Dreams of purchasing a second home or speculative investment in condo units have been stymied by tighter mortgage lending rules, with the consequences still being assessed.

The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, assessments with high LTV ratios warrant higher risk.

Starting on April 1, homebuyers were 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 had made payments on the first one.

The LTV ratio of 90-100% remains unchanged for those who apply for a first mortgage to buy a home priced below 10 million baht, but the ratio is lowered to 80% in cases where a borrower buys a residence valued at 10 million baht or higher.

In a country that experienced a disastrous financial crisis sparked by a property bubble 22 years ago, financial authorities will take no risk of such a calamity resurfacing.

But tightened mortgage lending rules equate to a depressed property market outlook and, more importantly, unapproved loans for those in need of a house or residential unit.

"Those who are co-borrowers or co-signers and those who have no money to pay a higher down payment will be affected by the new LTV limits," said Vichai Viratkapan, acting director-general of the Real Estate Information Center (REIC).

REGULATORY PAIN

Most property developers are worried about the LTV limits, which are dampening homebuyer sentiment after the new rule took effect last month, with some asking for it to be revoked.

Prasert Taedullayasatit, former president of the Thai Condominium Association, said the LTV limits should not be applied this year, as the overall economy and property market remain in the doldrums.

"The new lending rule should be postponed to next year in order for homebuyers to have enough time for preparation," Mr Prasert said.

The association and two others, the Housing Business Association and the Thai Real Estate Association, submitted a letter to the Finance Ministry last Thursday requesting a postponement of the LTV limits.

Other requests include shortening the history of borrowers' credit at the National Credit Bureau to one or two years instead of the current three years, as bank mortgage rejections are a big problem for buyers seeking a residential unit.

GH Bank offered an attractive interest rate for housing loans at a recent fair. PATIPAT JANTHONG

Mr Prasert, who is also the president for premium business at residential developer Pruksa Real Estate Co, suggested that the new government revise Board of Investment (BoI) home privileges to help middle- to low-income earners afford residential units.

"BoI home prices should be revised up to 2 million baht to be in line with rising costs," he said. "Condo Units should also be upsized from the earlier 28 square metres."

According to regulations of the BoI housing measure that were revoked in 2014, single detached houses and townhouses were required to have a usable area of at least 70 sq m with units priced at a maximum 1.2 million baht. The price would be no more than 1 million baht for a condo unit.

Wasant Kiangsiri, president of the Housing Business Association, suggested that co-borrowers be allowed to receive a mortgage loan if they want to buy their own unit for the first time.

But one property executive is at odds with critics of the LTV regulations, offering the view that stricter regulations build up financial discipline.

Thanapol Sirithanachai, president of SET-listed Golden Land Property Development Plc, said the LTV limits are good for the industry because they can help cultivate financial discipline among homebuyers.

MORTGAGE SLUMP

"The bank's housing loan applications in April declined by half from March, which is in line with our projection," said Nathapol Luepromchai, executive vice-president and head of the mortgage division at Bank of Ayudhya (BAY). "But we need actual data from the second quarter and the first half to prove the impact of the LTV limits. It's too early to say now."

Placing the blame on the new housing loan regulations as the cause of lower mortgage lending in April is unconvincing because there were several factors that could have led to the loan decline, Mr Nathapol said.

Those factors included a high-base effect, consumers' weak sentiment fanned by local and global economic uncertainties, and a calendar full of long holidays.

Given that as much as 80% of the bank's housing loan customers are first-mortgage borrowers, the new home loan requirements are not a significant blow to BAY's housing loan growth and the bank is sticking to its 2019 business plan, Mr Nathapol said. He estimated that the central bank would take a few more months to digest the effects of the new LTV curbs.

Despite the Finance Ministry's request to ease such regulations, Somchai Lertlarpwasin, senior director of the financial institutions strategy department at the Bank of Thailand, recently insisted that the new regulations would remain, reasoning that bad mortgages continued to climb for the three months through March and that a further uptick is expected this quarter.

The bad-mortgage ratio is likely to keep rising in the second quarter because of strong loan growth before the regulations came into force, Mr Somchai said.

Mortgage non-performing loans rose to 3.35% of loans outstanding at the end of March from 3.25% at the end of last year, according to central bank data.

Soured housing loans continued to increase over the past few years from 2.44% in 2015 to 2.93% in 2016, 3.23% in 2017 and 3.25% in 2018.

MORE ASSESSMENT NEEDED

Kasikornbank (KBank) executive vice-president Surat Leelataviwat said home transfers of the bank's mortgage loans plunged by 50% in April from the previous month, mainly due to last year's high base.

Home transfers reached this year's peak in March as homebuyers rushed to seek mortgages before the enforcement of the LTV requirements at the beginning of April, Mr Surat said.

As future demand for homes was already spent, the bank predicts new residential property sales this year to dip more than 10%.

"However, the actual data in the second quarter needs to be assessed further as to whether the market slowdown derived from the new regulations," Mr Surat said. "With the year-on-year comparative data for the second quarter, it will illustrate the real situation."

Before the new LTV regulations came into force, KBank adjusted its 2019 strategy for mortgage loans by focusing more on provincial markets. Home demand upcountry usually constitutes real demand, and there are fewer condo projects.

The bank has managed to extend home loans as targeted in the first quarter, thanks to the adjusted strategy. The full-year loan growth target of 66 billion baht is being maintained, Mr Surat said.

Even so, KBank will closely monitor the situation in the second quarter, he said.

In a move considered as normal practice, central bank staff already visited KBank to discuss the mortgage lending situation after the new regulations were implemented to seek the commercial lender's opinions.

LOWER TRANSFERS EXPECTED

The number of housing transfers nationwide this year is expected to decline by 7.7% to 335,000 units, largely due to LTV limits, according to the REIC.

In the first quarter, which was the last quarter before the LTV limits took effect, the number of housing transfers rose by 3.1% as some homebuyers accelerated transactions to avoid the new lending restrictions.

The REIC forecasts year-on-year drops of 13.8%, 9.2% and 9.6% in the number of housing transfers in the second, third and fourth quarters this year.

In Greater Bangkok, housing transfers are expected to fall by about 10% in 2019, with a decline of 4.8% in the first half and 14.9% in the second half.

"Co-borrowers should be allowed to withdraw their names from the main borrowers when mortgage loans have been paid for a certain period or after payment of a certain amount," Mr Vichai said.