Like it or not, Bank Negara Malaysia announced that effective 1 Jan 2012, financial institutions must make appropriate enquiries into a prospective borrower's income after statutory eductions for tax and EPF, and consider all debt obligations, in assessing affordability.
Aimed at promoting prudent, responsible and transparent retail financing practices, the new guidelines require financial institutions to make assessments of a borrower's ability to afford financing facilities based on a prudent debt service ratio as inputs to their credit decisions.
On top of that, a new guideline was stipulated that the maximum tenure for vehicle financing should not exceed 9 years, with immediate effect (18 November 2011). Right now, there are only 2 banks which offers vehicle financing up to 11 years, and less than 2% of car buyers now opted for tenures beyond 9 years. The changes was neglect-able.
Are you an Informed Borrower?The guidelines additionally hope to ensure that consumers are treated fairly in the sales, marketing and administration of financing facilities. As such, financial institutions are required to provide consumers with specific information on the following:
- total repayment amount
- total interest cost as well
- impact of an increase in the financing rate
The BIGgest Impact will be on Property sector?
Since that the banks are required to assess the affordability of borrowers based on net income, many people may not have the capital needed to pay for down payment. Although automobile industry will be affected, the biggest victim will be on property sector. This is because property purchasing needs more capital outlay.
On top of that, the value of property went up so high currently where the market value does not match the seller's asking price. To meet the short-fall, buyers are forced to fill-in with cash. This had already slowing down property prices lately. But, after the new guideline, would it be worst? Definitely.
The numbers of affordable buyers will became lesser. Hence, demand for property will be softened. What if supply more than demand? Simple economic theory told us that prices have to come down in order to strike a balance. I think this is true and will materialize next year.