State Bank: No ban on lending to buy future homes

Recently, the State Bank issued Circular 22/2023 amending and supplementing Circular 41/2016 regulating the capital safety ratio of banks.

This circular takes effect from July 1 this year, with many new contents. There are some concerns that the new regulations will cause difficulties for home buyers.

Specifically, the market is concerned that when the circular comes into effect, it will not allow commercial banks and foreign bank branches to lend to individuals to buy "unfinished commercial housing for handover (i.e. commercial housing formed in the future") secured (mortgaged) by the house itself. Therefore, individuals who want to borrow credit to buy "future-formed" commercial housing must implement other security measures or secure it with other assets.

However, the State Bank affirmed that the new regulation does not restrict the rights of future home buyers and is not contrary to current regulations.

Completed homes will be given a low risk rating.

Specifically, Clause 10, Article 2 of Circular 41/2016 of the State Bank stipulates: "A loan secured by real estate is a loan to an individual or legal entity to purchase real estate, carry out a real estate project and is secured by the real estate or real estate project formed from the loan according to the provisions of law on secured transactions".

Circular 22/2023 does not amend or supplement this content. Organizations and individuals who need to buy a house and guarantee (mortgage) this future house will apply a risk coefficient of 30-120% depending on the guarantee ratio calculated by the ratio of the loan balance to the value of the collateral. In case there is no information about the guarantee ratio, the risk coefficient is 150%.

Ngân hàng Nhà nước: Không cấm cho vay mua nhà hình thành trong tương lai - 1 — Circular 22/2023 does not restrict the right to buy future housing (Illustration: Tran Khang).

Meanwhile, Clause 1, Article 1 of Circular No. 22 amended and supplemented Clause 11, Article 2 of Circular No. 41 on home mortgage loans, which are loans secured by real estate for individuals to buy houses.

Specifically, real estate secured loans for individuals to buy houses must meet the following conditions:

First, the source of debt repayment is not the source of rental income generated from the loan.

Second, the house has been completed for handover according to the house sale contract.

Third, banks and foreign bank branches have full legal rights to handle mortgaged houses when customers cannot repay their debts according to the provisions of the law on secured transactions and the law on housing.

Fourth, the house formed from this mortgage loan must be independently valued (valued by a third party or by a department independent of the credit approval department of the bank or foreign bank branch) with the principle of prudence (the value is not higher than the market price at the time of loan approval) according to the regulations of the bank or foreign bank branch.

For loans to buy social housing, buy housing under Government support programs and projects, they are determined according to the provisions of the law on housing and meet the conditions (first, third, fourth) mentioned above.

Regarding this regulation, the State Bank explained that home mortgage loans will include: Home mortgage loans to buy houses that meet the prescribed conditions, including the condition of completion for handover, and loans to buy social housing, buy houses under the Government's support programs and projects. The risk coefficient applied to home mortgage loans ranges from 20-100%, depending on the guarantee ratio and income ratio.

For loans to buy social housing, buy houses under the Government's support programs and projects, there is no need to meet the condition of the house being completed for handover and the risk coefficient is lower than other home mortgage loans at only 20-50%, in order to implement the Government's policy of encouraging social housing.

The State Bank said that the condition of a completed house under a home purchase contract only applies to home mortgage loans (which are subject to a lower risk coefficient than other receivables secured by real estate).

In case an organization or individual has a need to build or buy a future housing and mortgages the future housing, it will be a case of a loan secured by real estate as prescribed in Clause 10, Article 2 of Circular 41 and the corresponding risk coefficient as prescribed in Clause 10, Article 9 of Circular 41 will be applied.

"Thus, this regulation does not restrict the rights of organizations and individuals to buy future housing and is not contrary to current regulations," the State Bank affirmed.

Previously, commenting on Circular 22/203 of the State Bank, Mr. Le Hoang Chau - Chairman of the Ho Chi Minh City Real Estate Association (HoREA) - said that the above regulation did not allow commercial banks and foreign bank branches to lend to people to buy unfinished commercial housing for handover (ie commercial housing formed in the future) secured (mortgaged) by that house itself.

According to him, if the above details are not amended immediately before the Circular takes effect, this regulation could lead to bad consequences, causing difficulties and hindering the normal operation of the real estate market, negatively affecting the recovery and development process of the market both in the short and long term.

HoREA proposed to add a regulation allowing credit institutions to lend to individuals to buy future commercial housing secured (mortgaged) by the house itself. This regulation applies to both cases of buying commercial housing or social housing, with available housing or future housing.

Source