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Interest Servicing Loan Needed for My First Home Scheme

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The My First Home Scheme was first announced in the 2011 Malaysia Budget by the Malaysian government to assist young adults who have just joined the workforce, with a gross income not exceeding RM3,000 per month, to own their first home. In line with the Government’s aspirations of increasing home ownership amongst the “rakyat”, the Scheme allows young adults to obtain up to 100% financing from participating banks, enabling them to own their first home. During the recent Budget 2012 speech, the Prime Minister announced that the My First Home Scheme would be expanded to increase the limit of house prices from a maximum of RM220,000 to RM400,000.

Property developer, Allstones Group Asia Sdn Bhd, expressed hope that the banking industry would look into ways of ensuring the success of the My First Home Scheme. Commending the recent announcement, its Chairman, KH Sim, said, “It is a good initiative for Budget 2012, but the fact that it is still restricted to buyers who earn less than RM3,000 a month, means that many will still not qualify to buy houses in the RM300,000 to RM400,000 bracket, and it is expected that many of the new launches planned by major developers will be in that range.”

Sim hoped that banking institutions would look into providing more ‘friendly’ and flexible loan options which could support the Government’s aspirations of increasing home ownership amongst the “rakyat”. “If young adults are to truly benefit from this Budget initiative, banks should consider offering interest servicing housing loan only, with gradual amortization as the buyer’s income increases over the years and with their annual bonuses, instead of the commonly-practiced monthly principal and interest installments,” Sim said.

According to the Scheme’s current eligibility criteria, based on current interest rates and permitted maximum financing tenor of 30 years, an applicant’s maximum eligible financing amount is approximately RM200,000. To obtain RM220,000 financing, combined monthly income would need to be approximately RM3,300 per month.

“If interest servicing housing loans are offered, say at five per cent per annum for a RM220,000 housing loan, the monthly payment will be about RM917.00. This would increase the number of eligible buyers and also allow the “rakyat” to purchase a higher priced house, which could be nearer to their workplace and/or current and proposed mass rapid transit public transportation,” explained Sim.

“Banks should be encouraged to introduce interest servicing loans only for first time or low income buyers, instead of the commonly practiced and current principal and interest installments arrangement. That way, the monthly payment is lower, and this will help young adults purchase their first home. Many countries like Australia are already practicing this,” he concluded.