The central bank is expected to maintain selective credit controls for the third time if local banks’ aggregate mortgage lending continues rising at a double-digit rate, DBS Bank Ltd’s Singapore-based chief economist Ma Tieying (馬鐵英) said yesterday.
The central bank on Dec. 7 last year imposed new selective credit controls on real-estate financing and further tightened its grip on March 18. These entailed imposing a cap on the loan-to-value (LTV) ratio, which now stands at 55 percent for individuals who want to buy a third house and 50 percent for those who plan to buy a fourth one, central bank data showed.
The LTV ratio is the ratio of the amount of mortgage to the appraised value of the property. The ratio is capped at 40 percent for corporate buyers, regardless of whether they are buying their first or second property, the central bank said.
Photo: Lee Chin-hui, Taipei Times
The central bank’s recent tightening moves were not the most severe in Taiwan’s history, Ma told a news conference.
“In 2014, the central bank set a limit on the LTV ratio for individual buyers who wanted to buy a second house, and reduced the cap on the ratio for those who wanted to buy a third house to 50 percent,” Ma said. “There is still room for the central bank to further squeeze credit controls.”
The bank is expected to take the pace of increase in mortgages into account, rather than the growth rate in housing prices, when deciding if it should tighten credit controls for the third time, she said.
“House prices have not risen by a double-digit percentage in Taiwan, but the growth in mortgages has even outpaced Taiwan’s GDP growth, suggesting that the mortgage-to-GDP ratio has increased,” Ma said.
The central bank would be concerned if the average mortgage-to-household income ratio expands, as it would indicate a rising household leverage ratio and increasing instability in the financial system, she said.
Asked if the central bank might be worried that credit controls would hurt the property market and curb an economic recovery, Ma said that the bank would prioritize financial stability over a single sector.
DBS has revised up its forecast for Taiwan’s inflation to 1.5 percent from 1 percent, and expects the central bank to use three tools to ease inflation concerns: stepping up open-market operations, tightening selective credit controls and hiking the reserve requirement ratio.
“There is a more than 50 percent chance that the central bank would use the first two tools, as it had done before. The possibility is lower for the third instrument,” Ma said.
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