No more preapproved housing loans

PETALING JAYA (July 7, 2013): Bank Negara Malaysia (BNM) has announced a set of measures to help curb rising household debts and to reinforce responsible lending practices by key credit providers.

Effective immediately, mortgages will be capped at 35 years and personal loans at 10 years. Additionally, preapproved loans by housing developers is also halted.

The limits on financing tenure will not affect applications made before today, the central bank said in a statement last Friday.

"Household debts have continued to increase at a strong pace, averaging at an annual rate of 12% over the recent five years.

While this has been supported by positive income and employment conditions, in the more recent period, there has been a growing trend in the offering of financial products that are not in the long-term interest of consumers. "This includes extended financing tenures of up to 45 years for house financing and 25 years for personal financing," BNM said in a statement yesterday.

"While this may reduce the monthly repayments, in the long run, this increases the overall debt burden of households. Such practices encourage excessive debt accumulation by households and increase the vulnerability of this sector," it added.

These new measures introduced apply to all financial institutions regulated by BNM, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, Malaysia Building Society Bhd and AEON Credit Service (M) Bhd. This, it said was to ensure consistency in the financing practices across all the key credit providers.

In addition to the above measures, the key credit providers are required to observe prudent debt service ratios in their credit assessment to ensure households have sufficient financial buffers to protect them against rising costs and unexpected adverse events.

Households who have the financial capacity to take on borrowings will continue to enjoy access to financing.

To enhance responsible debt management by households, BNM will intensify its efforts in financial education to all segments of society including young and first time borrowers from financial institutions.

In addition, the framework for consumer protection will continue to be further strengthened under the Financial Services Act and Islamic Financial Services Act.