Home loan rejection high as banks tighten rules

The high rate of rejected applications has continued into this year, as the banks maintain their stricter lending policy.

Pruksa Real Estate’s condominium group managing director, Prasert Taedullayasatit, who is also president of the Thai Condominium Association, acknowledged that the rejection rate in the overall residential market was as high as 30 per cent last year, up from an average of 25 per cent in 2013, after the banks began to investigate all aspects of a customer’s official debt, such as hire-purchase loans and what is owed on credit cards.

"We [Pruksa] help our customers, however, by pre-approving their financial statement and also suggesting that they gather their financial records together before applying for a home loan," he said.

"Our rejection rate [among customers seeking a mortgage] increased from an average of 10 per cent in 2013 to about 15 per cent last year, when the commercial banks restricted the provision of mortgages among customers without a monthly income," said Land & Houses president Naporn Sunthornchitcharoen.

Most commercial banks are concerned about people’s purchasing power to pay back a loan at a time of rising household debt, and have therefore toughened their lending rules, especially among those who cannot show a regular monthly income, such as freelancer workers and those employed by small and medium-sized businesses, he said.

Last year, new residential mortgage lending came in at Bt550 billion, just 3 per cent higher than in 2013, according to Kasikorn Research Centre.

The research also showed household debt stood at 84 per cent of gross domestic product at year-end.

Mortgage-company idea

To help solve the problem of house-purchase finance for developers’ customers disqualified by tightened bank rules, the Secondary Mortgage Corp would like to see the companies setting up their own mortgage companies for customers, with the SMC backing the loans to support those people seeking to buy a first home.

SMC president Pornnipa Hachaiya-phum said the state enterprise had proposed to the Finance Ministry that the Act governing the SMC be amended to allow it to get into mortgage insurance, which would bolster the confidence of commercial banks to approve home loans.

The proposed amendments would also pave the way for property firms to establish mortgage companies to offer loans to their customers, with the lending backed by the SMC, she said.

Such a company would originate mortgages for potential buyers and seek funding from a client financial institution, which would provide the capital for the home loan itself, she added.

Pornnipa said this business model was based on successful mortgage businesses in Japan, namely, the Japan Housing Finance Agency (JHF) and the Mortgage Corporation of Japan.

"If the Cabinet and the National Legislative Assembly approved the amended legislation, we could set up the new businesses quickly, because we have a business model supported by the Asian Development Bank and JHF," she explained.

Pruksa Real Estate president and chief executive officer Thongma Vijitpongpun said the idea of developers establishing mortgage companies was an interesting one, as it could be a way for such people as freelance workers who do not have a monthly income, to get a mortgage.

Atip Bichanond, president of the Business Hosing Association, said he agreed with the idea, but it would take time to implement such a system securely for property firms because they lacked experience in loan provision, unlike the banks.

"I think this is a good idea, but it will difficult to put into practice. However, if it can be done successfully, it will support strong property-market growth for the long term," he said.