July 8, 2013

Impact of new BNM Rulings on Household Indebtness

Household Debts
Due to the rising household debts as compared to GDP in Malaysia, Bank Negara Malaysia (BNM) recently introduced new measures to further tighthen credit lending especially on housing and personal loans as follow:
 
  1. Maximum tenure of 10 years for financing extended for personal use.
  2. Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties.
  3. Prohibition on the offering of pre-approved personal financing products.
Now that we have these new measures, so what does it means to the people on the street? This is my opinion on the impact of new BNM rulings to the rakyat:
  •  Housing loans will be less afforable to the property investors/buyers, especially for the younger investors/buyers. With the shorten loan period, monthly installment is expected to rise and affect debt-to-income ratio, which is probably one of the factor financial institutions take into considerations.
  • Hopefully, the new measure can cool down/reduce the property market speculations, especially those developments without DIBS. Personally, i still wonder why Malaysian government hasnt banned DIBS as done by Singapore government few years back. In my opinion, DIBS is one of the factor that push property prices to beyond the reach for most of the rakyat.
  • Reduced availability of personal loans. A lot of youngsters and people in the lower income brackets are taking personal loans to cover for daily expenses as well as paying off credit card debts. With the introduction of such new measures are going to be painful to those people affected, but i do agree that such measure is needed to instill better financial management for the youngsters.
In summary, the measures are good for long term financial stability of the country. No doubt that it's going to be painful for those affected, but it's necessary to bring down household debts. I guess people needs to get the basic fact right: you must spend less than what you earn!

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