A lawmaker yesterday raised concerns that a housing mortgage bubble could burst if accommodative lending rates rise to a level that home buyers cannot afford.
For consumers and regulators to adopt precautionary measures, banks should disclose more information, People First Party Legislator Christina Liu (
"The regulator failed in preventing an unsecured bad loans crisis. They must not fail again by not taking precautions," Liu said on the sidelines of a question and answer session of the Financial Committee at the Legislative Yuan yesterday.
Consumers who are lured into buying houses by low interest rates are likely to become "house slaves" if monetary policies are tightened and interest rates shoot up in the future, Liu warned.
The local real estate market has rebounded from a slump in 2003 as the government has subsidized first-time homebuyers with preferential mortgage loans. Price wars and excessive funds in the crowded banking sector have also fueled the property boom with low-cost funds.
The overseas investment cap for insurers is likely to be lifted to 50 percent of total assets from 35 percent -- or over NT$6 trillion (US$180 billion) of working capital, she said, adding that it was possible that some NT$1 trillion in funds would flow out of the nation, increasing pressure on capital supply and boosting interest rates.
Against this backdrop, homebuyers will bear an additional 50 percent of mortgage payments if the rates rise to 6 percent from the current 2 percent on average, she said.
Lenders should advise customers of the potential risk associated with mortgages, so that consumers can make an informed decision before signing on a mortgage they may not be able to handle, she said.
The sizzling property market has sparked concern that the consumer credit abuse issue could spread to the sector.
The aggregate value of housing mortgage plus loans to developers reached NT$5.25 trillion -- or 27.5 percent of the total amount of deposit balance and financial debts -- close to the regulatory 30 percent cap, regulator's data showed.
In response, the Financial Supervisory Commission said they would require the banks' association to come up with self-disciplined rules in granting mortgages.
Lenders that fail to comply with the rule could face a fine of up to NT$10 million for breach of internal control, commission Chairman Hu Sheng-cheng (胡勝正) said yesterday.
The regulator has said it will begin investigating local mortgage lenders next month.
But Hu stressed that the local real estate sector remained stable, citing that average housing prices were nine times the average household income, which is considerably lower than Shanghai, where average prices are 15 times the average income.
The authority will carefully observe developments but will not adjust its policies to cool down the market, he said.
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