Home purchases comprise 24% of the total RM27.1b non-performing and impaired loans recognised by Malaysia’s banking sector

By SULHI KHALID / Pic By MUHD AMIN NAHARUL

A HOUSE mortgage is likely the largest borrowing most people will take and a small 20-basis-point difference among the many loan packages offered by the various lenders may make a big difference to how much is paid in total.

The Internet has made information available publicly for potential borrowers to scout around for the best deals, more so amid the Home Ownership Campaign (HOC) underway and market expectations that Bank Negara Malaysia (BNM) may cut its Overnight Policy Rate (OPR) again this year.

As central banks globally are taking a dovish stance due to weaker economic activity, BNM moved to cut the OPR in May this year.

The move, which will impact banks’ profit margins, is expected to leave financial institutions with the decision to increase the lending rate especially in the Islamic financing space.

RAM Rating Services Bhd in its publication Islamic Banking Insight early this year highlighted that Islamic banking continued to expand at a much faster pace than conventional loans in 2018, coming in at 11% (2017: 10.3%) in contrast to the latter’s 3.3% growth.

As at end-January 2019, Islamic financing comprised some 32% of the overall system’s loans.

A check on the Internet (taking into account a sum of RM500,000 for a loan over 35 years) revealed that the OCBC Al-Amin home loan offers the lowest financing rate of 4.2%, with zero lock-in period and a RM2,274 monthly installment.

OCBC Al-Amin Bank Bhd’s flagship Islamic home financing product, the Manarat Home-i package, offers borrowers the flexibility of choosing between fixed and floating or pure floating packages.

For its floating packages, the Islamic bank’s interest rates are on par with that of OCBC Bank (M) Bhd’s conventional home loans.

The Manarat Home-i package is a semi-flexi home loan that offers lock-in flexibility. Lock-in is optional, with non-lock-in packages priced slightly higher than packages with a lock-in period.

Borrowers are entitled to borrow for home renovation works — with loan amounts of up to 30% of the property value — should they want to during the home loan tenure.

Manarat Home-i is based on the concept of Musharakah Mutanaqisah (diminishing partnership) and Ijarah Muntahiah bi Al-Tamlik — whereby the bank purchases the property from the customer and rents it back to the customer, which is subsequently sold to the customer at the end of the finan- cing tenure at nominal value.

The CIMB Islamic Bank Bhd home loan product provides a 4.35% financing rate with a monthly installment of RM2,320, while the Alliance Islamic Bank Bhd home loan offers 4.4% with a monthly premium of RM2,335.

Moreover, the Maybank Islamic home loan offers 4.55%, with a monthly installment of RM2,382.

Household debt to GDP is at a high of 83% or RM1.18 trillion, with housing loans accounting for 53.2% or RM628 billion of the total.

Home purchases comprise 24% or RM6.51 billion of the total RM27.12 billion non-performing and impaired loans recognised by Malaysia’s banking sector as of June this year.

Among the highest offerings by Islamic banks presently is the Standard Chartered Saadiq Bhd home loan with a financing rate of 4.72% and a monthly installment of RM2,435.

Meanwhile, the AmBank Islamic Bhd home loan provides the highest financing rate of 4.75%, with a lock-in period of three years and monthly installments of RM2,444.

As the government is extending the HOC till the end of this year, potential house buyers may want to consider all factors and options for the pricing offered by Islamic financial institutions.