Attractive offers to turn around mortgage business

BUYING a property and getting a housing loan to finance it is a major commitment for most consumers, as they need to ensure that they can sustain the payments over the next 15 to 30 years.

It does not help that the current economic downturn is putting more pressure on consumers’ job stability, finances, and confidence resulting in most consumers putting off making such huge investments.

Bank Negara statistics seem to reflect the weaker consumer sentiment, with the mortgage segment experiencing an 8% decline in loans approved in January versus December last year.

Nevertheless, the recent reduction in banks’ base lending rate (BLR) to 5.55% per annum, as well as attractive promotions and packages offered by developers and banks, have raised some hopes that the tide will turn somewhat for the mortgage business.


Thoo Mee Ling

OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling says although OCBC’s mortgage business was reflective of the industry’s in January, the bank’s monthly loans applications rose markedly by 27% in February compared with the previous month, with monthly loans approved increasing by 35%.

“Indications are that the decline in BLR has indeed helped to bring in more business as suggested by the increase in loan applications and approvals last month.

“However, these are still early days, and we will need to monitor trends over a longer period to adequately assess the impact that the BLR revision has had on the business,” Thoo says.

Banks have reduced their BLR and base financing rate to 5.55% per annum recently, following Bank Negara’s cut in its overnight policy rate to 2% effective March 1.

Thoo believes that perks and incentives to make loans more attractive are often only short-term measures to stimulate the business.

“In the long run, we believe that we should further attune ourselves to meeting customers’ needs through tailor-made products and services that meet their specific requirements. We have a range of innovative products that cater to the various, complex, needs of individuals,” she says.

For example, OCBC’s HomeXtra package provides additional financing of up to 100% the loan amount for customers to meet their financial commitments.

In addition, the bank’s LVS (legal, valuation and stamping fees) financing package allows customers to finance their entry costs, and at the same time enjoy lower interest rates. Entry costs represent legal fees, valuation fees and stamp duty on loan documentation incurred when the customer wishes to finance his or her housing loan.

“Traditionally, customers prefer the fees-absorbed-by-the-bank packages, whereby they do not need to pay any entry fees; and this is despite the fact that such packages tend to be made available at slightly higher interest rates.

“Still, with the recent introduction of the LVS package, we see a shift taking place – where lower interest rates are being valued more than other attractive fee-related benefits,” Thoo says.

CIMB Bank expects to see a decline in the number of new loans booked as consumers adopt a wait and see attitude, and is projecting a lower target for 2009.

Head of retail banking Peter England is optimistic the bank’s mortgage business will grow at least 13% this year. CIMB Bank’s mortgage business grew over 25% last year versus 2007.


Peter England

“The lower BLR is very attractive for people looking to buy properties. It is probably one of the lowest rates for the past few years,” he points out.

CIMB Bank recently rolled out its Islamic Flexi Home Financing-i, which is linked to a special current account to enable customers to offset their outstanding principal with deposits.

England says the home loan has contributed significantly to the growth in the bank’s mortgage sales, with RM200mil sold in the first month after the launch.

“We are looking at rolling out another innovative product in the second quarter that will further strengthen our market share in Islamic property financing,” England says.

At present, one-third of the total mortgage facilities booked by customers come from CIMB Islamic’s range of products.

TA Securities senior analyst Wong Li Hsia notes that banks are still keen on loans growth and are very competitive especially in the mortgage segment.

“To grow loans, banks tend to focus on two main areas - mortgage and loans to small and medium enterprises. The lower BLR could help to encourage borrowing,” she says.

Wong expects mortgage loans to grow at a slower pace this year, as demand drops and banks are more cautious about who they lend to. “We are looking at a low single digit growth for mortgage this year,” she adds.

By The Star (by Elaine Ang)