Fri, Oct 05, 2018 - Page 10 News List

Thailand tightens mortgage rules to curb speculation

PROPERTY BUBBLE?New rules that take effect on Jan. 1 include an 80% loan-to-value limit on mortgages for homes that are worth more than 10 million baht

Bloomberg

The Thai central bank is to tighten mortgage lending rules to curb property speculation after growing concern about risks stemming from a prolonged period of near record-low interest rates.

The Bank of Thailand is to impose an 80 percent loan-to-value limit on mortgages for homes worth more than 10 million baht (US$310,000), effective Jan. 1 next year, for new lending, it said in a statement yesterday.

The same restriction applies to purchases of second homes.

Banks would also be prohibited from providing advances that exceed the value of a property.

Intense competition in the mortgage sector had led to a loosening of lending standards, Bank of Thailand Director of the Financial Stability Sakkapop Panyanukul said.

The monetary authority has seen instances of loan-to-value ratios exceeding 100 percent, as well as purchases with no down-payments.

“The macro-prudential measure should help reduce speculative buying and search-for-yield behavior,” Sakkapop said in a briefing in Bangkok. “This is a preventive measure.”

Currently, lenders are required to set aside more reserves for riskier mortgages, but there are no binding limits on the loan-to-value ratio.

In the minutes released on Wednesday of the central bank’s Sept. 19 decision to leave borrowing costs at 1.5 percent, the monetary policy committee said the share of nonperforming loans in the mortgage sector had increased.

An oversupply of condominiums in certain areas remained high, the panel said.

The central bank yesterday said it does not see a bubble in property prices and that the tighter rules would not affect economic growth.

The Bank of Thailand is edging closer to its first interest-rate increase since 2011 after a split 5-2 vote to leave the benchmark rate on hold last month.

Two monetary policy committee members voted for an increase to 1.75 percent.

The average selling price of condominium projects launched in the past few years has increased by between 5 percent and 10 percent year-on-year, Colliers International Group Inc said in its second-quarter report for Bangkok.

“This is not putting a break on the property sector,” Bank of Thailand Assistant Governor Wajeetip Pongpech said at the briefing about the new mortgage rules. “We are just lowering the speed.”

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