Zeti Cautions First-time Home Buyers

First-time home buyers need to look beyond just securing a mortgage loan, they also need to ensure that they meet the affordability criteria before they make a purchase to avoid taking on a debt they cannot handle.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said that although the central bank has always had more flexible policies for first-time home buyers, they should first demonstrate that they can meet the affordability criteria prior to buying a home.

“They must, and if they can, demonstrate even if they are sole proprietors and they are not employed in any organisation or corporation; that they can prove that they have met the affordability criteria in many different ways. Banks have given that flexibility,” she said on the side-lines at the Malaysia-OECD High-Level Global Symposium.

At the moment, property financing for first-time home buyers is based on a case-to-case basis, and first-time buyers stand to get up to 90% loan financing.

Zeti said that while the central bank is working towards ensuring that houses remain affordable for first-time buyers, the buyers themselves need to assess their debt-to-service ratio to avoid facing financial complications down the road.

As a rule of thumb, your monthly home instalment, including principal, interest, real estate taxes and homeowners insurance should not exceed 28% of your gross monthly income to avoid getting sucked into bad debt or risk foreclosure.

“It’s worse when somebody buys a house and in the end, he or she is not able to have the basic needs because of the debt burden they have taken on,” she said.

She added that it was worse if the first-time home buyer was not able to service the loan in the end. “The house will be repossessed and they can end up in bankruptcy. We certainly don’t want that to happen.”

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