Special step-up end-financing – is it worth the trouble?

PETALING JAYA: The special step-up end-financing scheme announced in Budget 2017 for homes under 1Malaysia People’s Housing (PR1MA) seems to be more trouble than it’s worth.
Last Friday, the government announced a special step-up end-financing scheme in collaboration with Bank Negara Malaysia, the Employees Provident Fund (EPF) and four banks – Maybank, CIMB, RHB and AmBank.
Prime Minister Datuk Seri Najib Abdul Razak said financing will be easier and more accessible to buyers with a total loan amount of 90-100% with the rejection rate to be reduced drastically.
For example, an applicant with a monthly income of RM3,000 will be eligible for a loan of only about RM187,000. However, through the special scheme, the applicant will be able to borrow more than RM295,000.
The EPF confirmed that a facility will be introduced for members who meet PR1MA’s eligibility criteria and are making EPF housing withdrawal for the first time.
However, it also said that upon choosing the facility, all other pre-retirement withdrawals under Account 2, namely medical, education, Age 50 and Hajj withdrawals, will no longer be available until the PR1MA loan is fully settled.
“I don’t think that’s a good idea. One must prioritise what is more important – a roof over your head or your health,” CH Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen told SunBiz.
While the details of the scheme have not been finalised, Foo said, it is likely that the interest rates offered under the scheme would be higher due to the higher risk that the banks have to take.
“They need to make sure they don’t overstress the borrower in terms of the interest rate. Perhaps also, they could set up a time frame, maybe five or 10 years, within which the borrower must settle the loan, to ensure that they replace what they have withdrawn,” he said.
Malaysian Institute of Estate Agents immediate past-president Siva Shanker said the scheme may tide over a small group of buyers who need a “top up” in their home loans and have the ability to repay.
“The scheme may backfire. What happens if you have a medical emergency? The money you save in EPF is for your retirement,” he said.
“Although property is a good asset, it is not a liquid asset. If you have an emergency today, you can’t sell it immediately for the money and you may be forced to sell it below its value or at a loss just because you need the money,” he added.
Siva cautioned against banks lowering their criteria to extend loans to buyers who actually cannot afford the loans.
“This is how the subprime crisis happened in the US, when people who couldn’t afford mortgages were given mortgages. If it is widespread enough, markets worsen, salaries are cut and layoffs happen, there will be people who can’t afford to repay their loans,” he said.