Central bank imposes mortgage curbs

Prospective homebuyers check details and conditions at a housing fair in Bangkok in 2016. (Bangkok Post file photo)

The Bank of Thailand has tightened mortgage lending rules to curb property speculation after growing concern about risks stemming from a prolonged period of near record-low interest rates.

The central bank imposed an 80% loan-to-value limit on mortgages for homes worth more than 10 million baht, effective Jan 1, 2019  for new lending, it said in a statement Thursday.

The same restriction applies to purchases of second homes. Banks will also be prohibited from providing advances that exceed the value of a property.

Intense competition in the mortgage sector had led to a loosening of lending standards, said Sakkapop Panyanukul, the director of the financial stability unit at the central bank. The monetary authority has seen instances of loan-to-value ratios exceeding 100%, as well as purchases with no down payments.

“The macro-prudential measure should help reduce speculative buying and search-for-yield behaviour,” Mr Sakkapop said in a briefing. “This is a preventive measure.”

Currently, lenders are required to set aside more reserves for riskier mortgages, but there are no binding limits on the loan-to-value ratio.

In the minutes released Wednesday of the central bank’s Sept 19 decision to leave borrowing costs at 1.5%, the monetary policy committee said the share of non-performing loans in the mortgage sector had increased.

An oversupply of condominiums in certain areas remained high, the panel also said.

The central bank on Thursday said it doesn’t see a bubble in property prices and that the tighter rules won’t affect economic growth.

The Bank of Thailand is edging closer to the first interest-rate increase since 2011 after a split 5-2 vote to leave the benchmark rate on hold last month. Two monetary policy committee members voted for an increase to 1.75%.

The average selling price of condominium projects launched in the past few years increased by about 5% to 10% annually, Colliers International Group Inc said in its second-quarter report for Bangkok.

“This is not putting a break on the property sector,” assistant governor Wajeetip Pongpech said at the briefing about the new mortgage rules. “We are just lowering the speed.”

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