If you are an aspiring first time home owner and have had your bank loans rejected, you are not alone.
From real estate agents to developers, anecdotal evidence on the ground suggests that the rejection loan rate in Malaysia is as high as 40 per cent.
However, the Association of Banks Malaysia (ABM) has said this figure is actually around 20 per cent.
According to figures by ABM, the number of housing loan applications in 2015 across 13 banks totalled some 456,853.
Of this, 93,159 applications was rejected which translates to a rejection rate of 20.39 per cent.
The reasons for banks rejecting their applications are many. Here are some of the most common reasons and what you can do:
Reason 1: You do not have a regular savings plan
Banks want to see a good pattern of savings habit before they can decide if you are going to be a good paymaster or not. Your monthly bank statements that you provide to the banks for loan application will greatly determine if you will succeed or fail in your mortgage application.
It is always a good idea to set aside at least 10 per cent of your income every month at least one year to six months before you apply for a housing loan to show a regular savings habit.
While this may sound easy on paper, the reality is of course very challenging due to the rising cost of transport, food and other basic necessities in Malaysia. Hence, it is imperative that you try your best to live within your means.
Cut back on unnecessary expenses like that RM12 cup of coffee at Starbucks and opt for something cheaper at a local coffeeshop. Always ask yourself “is this really necessary” before purchasing something. Delayed gratification will pay in the long run.
Reason 2: You did not pay your credit card bills on time
According to a survey by the Asian Institute of Finance (AIF), majority of Gen Ys (38 per cent) are living on high cost of borrowing, while 47 per cent are engaged in expensive credit card borrowings. Of this, 45 per cent do not pay their credit card bills on time.
This is a worrying trend as it will affect your credit history (CCRIS). When you apply for a housing loan, banks will check against your CCRIS to see if you have been paying your credit card bills on time. Not doing so will result in immediate rejection.
Make sure you pay at least the minimum sum before the stipulated deadline six months before your housing loan application. This will be reflected in your CCRIS to show your debt payment habits. A good credit history will mean higher chances of getting your loans approved.
Reason 3: You have an outstanding PTPTN loan
According to PTPTN, as of June 2016 there are 1.25 million borrowers listed on CCRIS with some 600,000 PTPTN borrowers who have yet to make their repayments. In fact, I know of many Malaysians who have not paid their PTPTN loan for years. PTPTN is now clamping down hard on loan defaulters which will affect your CCRIS.
If you still have not finished paying your education loan or are having issues in repayment, talk to PTPTN directly. PTPTN has already said that they are “open for negotiations” so talk to them if you have any problems servicing your loan.
Reason 4: You did not pay your car loan on time
Just like credit card loans, not servicing your car loans on time will affect your CCRIS. So again, this has to be paid on time for your loans to be approved.
If possible, I would urge you to not buy a car first as a car is a liability – meaning it does not generate income and drops in value over the years. In addition, there are many out-of-pocket expenses like car insurance, road tax, parking fees and so on. The only exception is if you are an Uber or Grab car driver, where it becomes an asset – meaning it generates income for you.
While I understand that good public transportation is an issue, there is now more option for commuters thanks to the reliability and affordability of Uber and Grab services. Instead, set aside a portion of your income towards down payment for your first home.
Reason 5: You have been blacklisted
Not fulfilling reasons two to four and then being served with a lawyer’s letter will result you being blacklisted on Credit Tip Off Service (CTOS).
To check if you have been blacklisted or not, go to http://www.ctoscredit.com.my/ and log in with your identity card number.You will then gain access to your CTOS score which can range from 300 to 850. The lower the score, the higher your credit risk – meaning you are most likely to get your loans rejected.
It is always good idea to talk to banks and PTPTN to restructure your loan instalments before you apply for a housing loan. Tell them what your problems are and that you have an intention to apply for a housing loan. Work out a plan on how you can get off the blacklist. There is always a way out.