Property buyers will no longer have the option to take loans for longer than 35 years. Anyone taking a personal loan can now only do so for a period of up to 10 years.
These are new rules set by Bank Negara with the aim of helping to reduce household debt in the country.
Before the new caps, property buyers could take loans for up to 45 years, while personal loans could be paid back over a period of up to 25 years.
Bank Negara is acting because Malaysia’s household-debt-to-Gross Domestic Product (GDP) ratio is a high 83%. It is the highest in emerging Asia.
The stricter lending guidelines also saw the central bank prohibiting the offering of pre-approved personal financing products.
These new measures to tackle household debt will also be extended to all financial institutions and credit cooperatives regulated by Bank Negara, the Malaysia Co-operative Societies Commission, Malaysia Building Society Bhd, and Aeon Credit Service (M) Bhd.
All these institutions will also need to follow responsible lending limits. New borrowers, especially those with lower incomes, can only take on debt amounting to 60% of their monthly take home pay.
The new limits will not affect loan applications made before yesterday.
Bank Negara governor Tan Sri Zeti Akhtar Aziz, in a briefing yesterday, said the household debt was not yet at an alarming level, but based on present trends it would eventually be so.
Extremely long property loan periods “encourage excessive debt accumulation by households and increases the vulnerability of this (the household) sector,” she said.
Industry players said the measures would have a limited impact on the property market because the older generation of Malaysians had already bought into the property cycle.
They said the latest caps would mainly affect the younger generation.
“They are the ones who will need loans with the extra tenure, not the older generation who are mainly able to afford (higher monthly repayments),” said IOI Properties’ director Teh Chin Guan.
“In the short term, the level of affordability for the younger generation will be lower at today’s prices,” he added.
Elvin Fernandez, managing director at property consultant Khong & Jaafar, said these moves by the central bank should be applauded because property loans with a tenure of more than 40 years was not advisable.
Real Estate and Housing Developers’ Association of Malaysia president Datuk Seri Michael K.C. Yam believed the measures were a “good pre-emptive move because Malaysians are not very disciplined when it comes to these matters”.
“In other countries the maximum tenure is usually 25 years or until the person reaches the retirement age of 55,” he added.
Federation of Malaysian Consumers Associations president Datuk Marimuthu Nadason also supported the new measures.
“But I urge Bank Negara to work with civil societies like us on financial literacy education, which Malaysians sorely lack,” he said, pointing out that 51 people were declared bankrupt daily in the country.
Korisatan Karuppiah, Penang Consumers Protection Association president, said borrowers should be allowed to repay their loans ahead of schedule, without penalty.
“The lenders argue that they have already made plans with your money over the tenure you agreed with, and that paying back the sum early affects their plans,” he said.
He said the penalty was a fine, of between RM10,000 and RM35,000, depending on the size of the loan.