Bank Negara Regulation on Loan Approval, Margin, Written and Unwritten

Loan approvals are affected by written or unwritten rules where written rules are regulations that have been announced by BNM which will affect the property investment. Bank Negara Malaysia has decided to tighten the customer lending through few of their new set of regulations which will give a huge impact to the home loan procedures.

Examples of measures by BNM to curb property speculation.

There are three measures that have been taken by the central bank which includes:

1) The loan margin for third property and onward will be of 70% which has been announced to take immediate effect starting November 2010. This means to those who want to get their third home might have to come up with their own 30% of the value of the house. Malaysian now need to pay more down payment in order to purchase their third properties or subsequent after the announcement take effect.

2) A maximum tenure of 10 years for personal loans – which means that you are no longer eligible taking the loan with a loan period of more than 10 years. BNM says this is in order to reduce the debt of home owners.

3) A maximum tenure of 35 years for property loans – you can no longer get a home loan with the loan period of more than 35 years here in Malaysia.

4) A ban on pre-approved personal financing products – all those pre-approved loan offers that you may have been receiving from the bank; they are no longer available now even if you have an excellent credit rating.

Unwritten rules by BNM to control household debts

Then there are also some unwritten rules that Bank Negara Malaysia have that are neither announced or in the document such as:

1) Sometimes before launching any guideline, the BNM might have requested for the commercial banks to do a trial run of implementing the informal “preferred rules in BNM”, or suggested some treatments by the banks in the procedure of assessing the loan applicant. These are not currently issued guidelines, hence banks are not really mandatory to comply with these, but most of the banks here would try to cater as much they can to BNM’s informal guideline, and hence this is called unwritten rules by BNM.

2) This is rather seldom being discussed in public and hence it is not really discussed in public. However, do be aware that sometimes, when you realize that it is going to get more difficult to get your loan approved nowadays, it might be contributed by these suspiciously unwritten rules.

3) Financial institutions are also responsible to help establish that borrower’s income after statutory deductions, expenditure on necessities and all other obligations that shown are able to meet debt repayments.

These new financing rules might impact on refinancing. It will also affect how housing loan is being approved.

You may also be interested in “Features of housing loan & fees involved” and “When is the right time in life to buy property“.