The measures include cutting the ceiling on loan-to-value ratios to between 60 percent and 70 percent, increasing mortgage interest rates by 0.25 percentage points to 0.5 percentage points, and eliminating grace periods for the repayment of loans.
The eight banks are the Bank of Taiwan, Land Bank of Taiwan, Taiwan Cooperative Bank, First Commercial Bank, Hua Nan Commercial Bank, Chang Hwa Bank, Mega International Commercial Bank, and Taiwan Business Bank.
As the eight banks hold a combined mortgage market share of about 50 percent, the measures are expected to have a significant impact on the domestic real estate sector.
On March 8, Perng Fai-nan, governor of the Central Bank of the Republic of China, instructed all domestic financial institutions to provide information within three days on their respective mortgage rates, LTV ratios, loan grace period policies and investor definitions. The financial institutions all responded to the request by the stated deadline.
The Land Bank of Taiwan, the leading mortgage lender on the island, had previously fixed a standard for defining luxury homes that took into account various factors, including size of residence, as well as design, building materials and public facilities, to name a few.
Su Ler-ming, president of the bank, said the bank’s standard for defining luxury homes is based on its long experience and knowledge of the domestic property market. However, he continued, in consideration of establishing unified standards, his bank will take into account the Bank of Taiwan’s standards, and use its original regulations for internal review.
The Bank of Taiwan has defined luxury homes as those valued at more than NT$80 million (US$2.5 million) in Taipei City and Taipei County and at over NT$50 million in other markets. While such a definition of a luxury home is stricter than that of the Taiwan Cooperative Bank, top officials from the cooperative bank said as “changing policy quickly is not good,” it will maintain its original definition of a luxury home as one worth more than NT$100 million.
The officials said their bank’s definition is based on information derived from mortgage databank statistics. According to the bank’s definition, a residence of 100-ping (330 square meters) at a price of NT$1 million per ping is considered a luxury home.
A top executive at Mega International Commercial Bank said his bank’s mortgage interest rates would probably be about 2.5 percent after the upward adjustment in rates, which he claimed would not have too great a negative impact on the market.
On the other hand, he continued, the banks’ move to cut LTV ratio by 20 percent to mortgage borrowers who plan to buy luxury properties will have a major effect, as this will equate to a significant reduction of NT$20 million in mortgage for a residence valued at NT$100 million.
He forecast that these measures will likely result in a drop in luxury home prices as they will dampen people’s desire to purchase a new residence and make it more difficult for speculators to acquire new properties through leveraging, thereby leading to a decline in real estate transactions. (SB)