Mortgage growth in Thailand hits 23-year low at 1.2%

Kasikorn Research Center (K-Research) projects a mere 1.2% growth in mortgages within the commercial banking sector this year, marking the lowest expansion rate in 23 years. This subdued growth is largely due to the weakened purchasing power of potential homebuyers.

According to Kanjana Chockpisansin, head of banking and financial sector research at K-Research, the second quarter of 2024 saw commercial banks record a slight year-on-year increase of 0.8% in mortgage loans, down from 1% in the previous quarter.

“Elevated household debt levels in Thailand, stagnant income growth, declining purchasing power, and reduced debt repayment abilities are the main factors limiting mortgage expansion.”

This deceleration in mortgage lending spans both high-rise and low-rise housing projects. K-Research anticipates a nominal growth of only 1.2% in mortgages this year, the lowest in over two decades.

“The younger generation faces greater difficulties in accessing homeownership due to decreased purchasing power.”

The credit line for new housing loans per account has increased compared to previous periods, as banks now focus on upper-income segments for loan approvals to maintain asset quality.

To ensure adequate debt repayment capabilities, a homebuyer’s monthly income should be around 50,000 baht to purchase a condo priced at 3 million baht, while an income of 76,000 baht per month is necessary to buy a home valued at 4.6 million baht, according to K-Research.

Despite the drop in new mortgages, the centre highlighted that housing refinancing loans continue to rise. In the second quarter of this year, refinance loans accounted for 21.3% of total new mortgages, up from 13.6% at the end of last year.

NPLs

The research house predicts that the banking sector’s non-performing loan (NPL) ratio for mortgages will exceed 3.9% of total outstanding loans by year-end, up from 3.71% as of June.

Both stage two mortgages and mortgage NPLs for residences priced under 10 million baht have increased since the fourth quarter of last year. Similarly, stage two mortgages for homes priced between 10 and 50 million baht have risen, primarily among upper-income individuals and small business owners.

Stage two housing loans are classified as having increased credit risk, typically indicating that while the borrower is still meeting their contractual obligations, they may be showing signs of financial distress.

The research unit anticipates that the Bank of Thailand’s responsible lending (RL) approach will limit the creation of significant new debts for individual borrowers.

In the next phase of RL, the central bank plans to implement a debt service ratio of 60% for retail borrowers with monthly incomes of less than 30,000 baht, and 70% for those earning more than 30,000 baht, reported Bangkok Post.