Home sweet home: The lack of affordable homes is the biggest problem, says Bank Negara.

KUALA LUMPUR: The biggest problem for house buyers is not the maximum 35-year loan repayment period but the lack of affordable homes, says Bank Negara Malaysia (BNM).

The central bank was responding to a media report calling for it to extend its loan repayment period for homes from 35 years to 40 years. BNM said the extra five years would do little to ease the burden for borrowers.

“The maximum housing loan tenure of 35 years is more than sufficient for borrowers to settle their housing loans by their retirement age.

“Access to financing is not the main problem confronting potential buyers of affordable houses. The fundamental issues that require resolution are affordability and the shortage of supply of reasonably priced houses,” it said in a statement.

BNM further supported its argument by including a comparison for a loan repayment of RM300,000 over 35 and 40 years with an interest rate of 4.65%. (see table)

“The implementation of Bank Negara’s responsible financing guidelines serves to protect individuals’ interests so that they borrow within their capacity to repay the loan throughout its tenure.

“This is to prevent borrowers from falling into financial hardship due to excessive debt burden that may lead to foreclosures, which will undermine the objective of house ownership.

“Financial institutions are responsible for establishing that the borrower’s income after statutory deductions, expenditure on necessities and all other obligations is able to meet debt repayments.

“This is to ensure that borrowers can continue to service the loan and have sufficient financial buffers for living expenses and deal with any future increase in financing rates and rising costs,” it said.

The central bank, in 2013, introduced new stringent lending regulations to prevent banks from giving loans to less than credit-worthy individuals who end up defaulting.

The move, however, has been criticised by developers and even state government officials, who say that it hurts prospects for first-time home buyers.

BNM, however, said banks have given out 10.1% more outstanding housing loans, totalling RM460.2bil until July 2016 compared with the same period in 2015.

About 75% of borrowers, approximately 1.5 million people, are first-time house buyers.

Meanwhile, Malaysia’s two biggest banking associations – the Association of Banks Malaysia (ABM) and Association of Islamic Banking Institutions Malaysia (Aibim) – said institutions were committed to working with first-time buyers to work out a package that would suit their needs and help them own a house.