The central bank’s board members in September agreed to tighten lending terms to induce a soft landing in the housing market, although some raised doubts that they would achieve the intended effect, the meeting’s minutes released yesterday showed.
The central bank on Sept. 18 introduced harsher loan restrictions for mortgages across Taiwan in the hope of curbing housing speculation and hoarding that could create a bubble and threaten the financial system’s stability.
Toward the aim, it cut the loan-to-value ratio by 10 percent for second and subsequent home mortgages and denied grace periods for first mortgages if applicants already owned other residential properties.
Photo: CNA
One board director said that some people have taken advantage of the grace periods — when borrowers need only pay interest — and resold properties for profit before the grace periods expired, the minutes showed.
The director panned the practice, calling it short-term speculation that has contributed to increases in home prices — making owning a home increasingly unaffordable for people with real demand.
The director said that more forceful measures should be introduced to rein in housing credit, warning that a reversal in housing prices or a hard landing could hurt Taiwan’s financial stability.
First-time mortgage applicants who own multiple residential properties account for nearly 20 percent of applications, the central bank said.
The central bank later backed off and allowed inheritors to qualify for grace periods.
It also removed credit controls for people who have inked home purchase agreements, but have not yet secured bank loans, and for people who need to relocate for family and working reasons, as long as they sell their prior homes within a year.
Another board director said that the latest credit controls were harsher and more expansive, as they extend nationwide, rather than being restricted to the six special municipalities, as well as Hsinchu city and county, the minutes showed.
However, the success of the credit controls remain to be seen, the director said, as not all people in Taiwan need bank credit to advance their property investment plans.
Another board director pressed the central bank to remain watchful for inflation given that house rents continue to rise, with the hikes partly reflecting house price trends.
An increase in interest rates promised a better solution than tightening banks’ required reserve ratios in cooling the housing market, the director said.
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