Potential homebuyers from Gen Y and Z face significant obstacles to owning a home, with the primary one limited access to mortgages.
Rising house prices and stagnant incomes are barriers affecting this segment's ability to secure financing.
Banks have tightened mortgage approvals because of the uneven economic recovery, escalating household debt, and heightened credit risk among borrowers.
Financial institutions are prioritising asset quality over loan growth, selectively approving new home loans.
Given these circumstances, younger buyers aged 20–37 are finding it difficult to secure home loans. However, proper financial planning and discipline can improve their chances of obtaining bank financing.
SLUGGISH HOME LOANS
In the third quarter this year, the housing loan growth rate in the banking sector was a modest 0.4% year-on-year, while non-performing loans (NPLs) for homes rose to 3.82%, up from 3.71% the previous quarter, according to the Bank of Thailand.
Potential buyers look at the deals on offer at the May 2024 edition of House and Condo Show.
Kasikorn Research Center (K-Research) forecasts outstanding mortgages issued by commercial banks will grow by only 1.2% in 2024, the lowest rate in 23 years. This deceleration reflects income constraints and the heavy debt burden of homebuyers, particularly younger generations.
Typically young people start their credit journey with smaller consumer loans, such as credit cards and auto loans, before applying for a mortgage.
According to banks' loan analysis using the debt service ratio (DSR), this makes it more challenging for this segment to qualify for a mortgage as an additional loan product.
Given these constraints, K-Research predicts banks will grow new mortgage loans selectively, focusing on upper-income segments.
For high-rise residential projects, banks will prioritise condos priced at a minimum of 3 million baht per unit, targeting applicants with monthly incomes of at least 50,000 baht, noted the research house.
For low-rise residential projects, the focus shifts to homes priced at a minimum of 4.6 million baht per unit, with targeted buyers earning at least 76,000 baht per month, according to K-Research.
On average, banks require a DSR of 60% for loan applicants earning less than 30,000 baht per month. This means a borrower's total debt payments should not exceed 60% of their net monthly income. For borrowers with a monthly income of more than 30,000 baht, banks typically allow a higher DSR of 70%.
YOUNG BUYERS
Given sluggish economic growth, stagnant income gains and rising house prices, how can young adults with monthly incomes of less than 30,000 baht access mortgages?
A financial planner at TMBThanachart Bank said it is possible given adequate preparation.
The planner suggests two steps to prepare for a mortgage. First, homebuyers should assess their ability to repay the debt. Second, they should choose a home price that aligns with their financial capacity.
For the first step, assess your monthly debt repayment capability based on the DSR practice. The formula is the applicant's salary times the debt burden of 40%, minus current debt to determine the debt repayment capability.
For example, Mr A earns a net income of 30,000 baht per month and has no other debt obligations. The calculation is 30,000 x 40% - 0 = 12,000.
According to the planner, Mr A can afford a debt instalment of 12,000 baht per month.
For the second step, select a house price based on the basic calculation formula used by banks: for a house priced 1 million baht, the monthly instalment is 7,000 baht.
If Mr A's monthly debt repayment capability is 12,000 baht, a reasonable house price using the calculation of 12,000 x 1 million divided by 7,000 is 1.71 million baht.
PREPARING TO APPLY
When applying for a home loan, a key factor for banks is the borrower's ability to repay debt. Financial planning is crucial to improve access to loans. A homebuyer should aim to reduce as much existing debt as possible before applying for a mortgage.
In addition, financial habits, such as timely repayment of debts and bills, reflect a borrower's financial discipline. These behaviours can significantly improve a borrower's chances of securing a loan.
"For instance, Mr A has a good credit card repayment history and uses his card responsibly. If he maintains a consistent deposit account balance, his chances of getting a mortgage increase," said the financial planner.
The planner recommends mortgage applicants prioritise paying off high-interest debt first to reduce their debt burden. Debt consolidation can be a useful tool to ease existing debt.
Borrowers are advised to avoid applying for multiple consumer loans from different banks simultaneously because this could increase their credit risk, said the planner. Loan applicants should refrain from taking on new debt 6-12 months before applying for a mortgage.
When applying for a mortgage, borrowers should carefully review the loan conditions of each bank to choose a package that aligns with their needs and ensures manageable debt repayments throughout the loan term. Key factors to consider include the interest rate, whether it is fixed or floating, the loan duration, fees, and any promotional offers.
Banks typically require a down payment of 5-20% of the total house price. Prospective applicants should start saving for this down payment a few years in advance, which demonstrates financial discipline and prepares them for the loan process, said the planner.
Several mobile banking apps offer tools for both saving and investing, helping depositors build wealth in preparation for borrowing. Joint loan programmes provide an alternative, making it easier for the younger generation to access bank loans.
Borrowers should be aware of various fees, such as a mortgage registration fee (typically 3,000-5,000 baht), stamp duty (0.05% of the loan amount), and fire insurance premiums. These costs should be factored into financial planning.
Applicants should also prepare the necessary documents for the mortgage application. Before applying, the planner advises checking your financial health with the National Credit Bureau (NCB) to ensure a smoother loan approval. The NCB offers a free credit inquiry once a year.
BECOMING A HOMEOWNER
Tatiya Prommongkol is a 28-year-old employee planning to buy a condo priced 3-3.5 million baht. With a monthly net income of more than 30,000 baht, she is aiming for a monthly debt instalment of around 15,000 baht, with a loan term of 15-20 years.
Ms Tatiya said she has been managing her deposits and investment portfolio through a digital platform to save for a down payment, aiming for 10-15%. She holds three credit cards and may close one or two, depending on their necessity, to improve her chances of loan approval.
"I've been saving for the past few years and have accumulated a significant amount to buy a condo. If I receive my bonus at the end of this year, it will be enough for the down payment as planned. I plan to apply for a mortgage next year," she said.
Ms Tatiya lived with her parents for a long time and never considered becoming a homeowner because she worked freelance. With the instability of her job and income, she felt a mortgage was not an option. However, after securing a stable job, Ms Tatiya feels more confident in taking on long-term debt.
"I'm considering several mortgage packages, initially applying with a commercial bank because of the convenience and favourable conditions, including additional loans for decoration. However, I plan to refinance with a state-owned bank after three years to take advantage of a lower interest rate," she said.