BANGKOK BANK - FIRST THAI BANK TO OFFER MORTGAGES TO FOREIGNERS
In a welcome breakthrough in Thai mortgage policy, foreigners will now be able to apply for mortgage loans thanks to a precedent set by Bangkok Bank (BBL); a move expected to be followed shortly by other Thai banks, keen to tap the foreign property investor market. Previously, Thai banks were extremely reluctant to grant mortgages to foreigners due to their poor credit risk and the current laws governing Thai property ownership.
This move by Bangkok Bank will put Thailand, more on a par with its neighbours in Vietnam and Malaysia, who do offer mortgages to foreigners. Chintan Mahida from the overseas property blog stated: "Thailand is now set to move up the ranks in overseas property, thanks to the Thai mortgage change. This is a positive move by the Bangkok Bank, having access to Thai mortgage finance will undoubtedly generate a surge in demand from buyers."
Local developers and real estate agents have also welcomed Bangkok Bank's move, seeing it as a means to restore confidence and kick start the Thai property market once more after its recent downturn, due to current political unrest and renewed fears of another coup. The mortgages are available currently up to a limit of Bt25 million, available in US dollars, Singapore dollars or euros (but not Baht!) via Singapore for a wide range of purchasers and Hong Kong for their citizens only. Previously, private off-shore personal loans or lines of credit, especially in the Isle of Man, were available, but at unattractive rates.
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The Head of the Thai Desk at the Singapore branch of Bangkok Bank, Yaovaluk Suksathit, said that currently the bank has made 20 loans. The Singapore branch has been more assertive in its approach than Hong Kong, which only extends mortgages on freehold condominiums, as their 49% freehold terms and 30 year leases (in some cases, 90 years in perpetuity) carry less risk than houses, whereas in Singapore, loans will be considered for other types of property, including homes on leased land |
Prospective purchasers can now borrow up to 70% of the property appraisal value or the purchase price, whichever is lower, dependent on the applicant's earning capacity, over a maximum loan period of 10 years. A buyer interested in purchasing a condominium costing Bt20 million, for instance, should ideally be earning around Bt300,000 per month.
However, all that glisters is not gold, as they say. Chintan Mahida, for example strongly advises prospective loanees to do their due diligence. If one was a Hong Kong citizen, for instance, one must pay a processing fee of about Bt125,000 baht on acceptance of the bank's letter of offer. Approximately Bt50,000 baht of this is refunded when the loan is drawn down. In addition, initially, 1.5% of the loan amount must be handed over to the bank as a "prepayment fee.
In addition market fluctuations, interest rate increases, rising costs of living and other variable factors must be taken into consideration. In borrowing, a safe rule of thumb is to assume, for example on Bt 1 million, double the sum borrowed, which now amounts to Bt2m, and then halve it again ie 50% of the loan. All told one will have to repay Bt 2.5m over the loan period. Ideally, those in the know advise prospective borrowers not to listen to sales hype from real estate agents as they are only interested in their commission, not in one's your ability to repay one's loan. The best criterion is only to buy if you really need to and have sufficient reserves to cover emergencies and other contingencies and also take into consideration the bogey of negative equity. This, as speculators in the US housing market found to their cost, is an ever present threat, where the market value slumps lower than the resale value of the property, leaving you heavily in debt. Take heed; follow your head, not your heart!
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