Mitigating Malaysia’s worrying trend of high home loan rejection

THE pandemic-ravaged economy looks likely to defer the home ownership drive among Malaysians as well as to further raise the rejection rate of Malaysian home loans which was already averaging 60% annually during the pre-pandemic years.

A recent survey by PropertyGuru found that while many Malaysians would like to own a home, 67% of the respondents have chosen to defer their property buying decision to between one and five years due as they continue to face challenges in their home ownership journey.

Compared to 1H 2021, the study found that more Malaysians are now uncertain about property prices (56%; up from 52%); experiencing delays in property transactions (51%; up from 42%); and facing difficulties in securing home loans (46%; up from 43%) in 2H 2021 due to the pandemic.

Above all else, Malaysian home seekers also cited an inability to afford down payment and unstable job or salary as their top two barriers to taking a home loan in 2H 2021.

Like it or not, all the aforementioned issues make up the right ingredients for home loan rejection. The 10 common reasons of home loan rejection among potential borrowers are:

  • Applying at the wrong bank
  • Low application score:
  • Unfavourable credit score (based on CCRIS or Central Credit Reference Information System)
  • Denied due to credit rule
  • Bad status in CCRIS
  • Bounced cheque frequency
  • Bankruptcy
  • Low debt Service Ratio (DSR)
  • Not submitting the ‘right’ income documents and other required documents
  • Poor employment history

Recall that the then LBS Bina Group Bhd group managing director Tan Sri Lim Hock San told FocusM in January 2019 that the developer has experienced as high as a 50% pull-out by potential home buyers even though the company managed to hit improved sales of over RM1.5 bil in 2018.

Most of this is due to loan rejections. The large number of drop-outs is surprising as one would expect the affordable segment to see fewer pull-outs.

But according to one property observer, this is not surprising at all. “I believe the drop-out rate for the affordable market is higher because this group of buyers are the ones facing financial constraints,” he opined.

“Therefore, the likelihood of banks rejecting their loan application is higher than that of the Top 20 income group (T20).”

The justification makes sense as the upper echelon will have sufficient funds for investments or at worse, they will just hold what they have acquired because they have the financial muscle to do so.

On the contrary, the lower end of the Middle 40 (M40) do not have this luxury while the affordability factor becomes even more prohibitive for the Bottom 40 (B40) group.

“Given the high dropout rate, we are more conservative with our offerings this year,” Lim pointed out.

As for LBS Bina, the affordable housing developer will focus on making its properties even more affordable to buyers through acquisition of land at a lower cost via partnerships with government agencies, and using industrialised building system (IBS) methods to reduce construction cost. – Sept 10, 2021

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