The central bank yesterday kept its interest rates unchanged, but hiked the required reserve ratio (RRR) on New Taiwan dollar passbook and time (savings) deposits by 25 basis points, and tightened mortgage rules for individual and corporate buyers.
The policy moves came after the US Federal Reserve on Wednesday cut interest rates by 50 basis points, lowering borrowing costs for the first time in more than four years in a bid to safeguard its economy.
Central bank Governor Yang Chin-long (楊金龍) said he had turned neutral in tackling inflation but found stiffer measures necessary to moderate real-estate lending.
Photo: Annabelle Chih, Bloomberg
“Greater credit controls are merited to ward off an overconcentration of home loans, which increased 11 percent year-on-year in the first 8 months, bringing overall real-estate lending to 37.5 percent [of total bank lending], very close to the record of 37.9 percent,” Yang told a news conference after a quarterly policy meeting.
From today, lenders must not grant grace periods for first-time mortgage applicants if they already own homes through inheritance or other means, Yang added. The grace period means borrowers only need to make payments on interest, and not on the principal during a period of time.
There are a lot of people in that situation in Taiwan and they affect real-estate lending, he said.
The change means there are no more grace periods for mortgages except for urban renewal projects, dangerous buildings and first homes for self-occupancy under the government’s favorable lending terms, Yang said. The governor voiced concern that soaring home loans would evolve into a situation akin to the US subprime mortgage crisis ahead of the global financial crisis in 2008 and 2009.
The new loan restrictions would also apply to people who plan to move, Yang said, adding that the central bank would consider making exceptions if necessary.
The central bank lowered the loan-to-value ratio (LTV) for second homes to 50 percent from 60 percent, and extended the measure from the six special municipalities and Hsinchu County to all of Taiwan, Yang said.
“It is unhealthy for banks to embark on reckless mortgage operations, which partially explain why real-estate lending has climbed rapidly since the second half of last year,” he said.
The tightened RRR would take about NT$125 billion (US$3.91 billion) out of the market, he added.
The LTV limit would drop to 30 percent from 40 percent for luxury and third homes, the central bank said in a report.
Corporate buyers and builders would also take a hit, as the central bank reduced the LTV cap to 30 percent from 40 percent, although unsold houses might enable builders to negotiate grace periods, the report said.
The central bank is serious about voluntary loan restriction measures that banks and community lenders submitted earlier this month and would diligently oversee their execution for the next 12 months to determine whether improvements are required, Yang said.
The governor declined to comment on whether the government should scrap favorable lending terms to cool the housing fever, saying that the matter falls outside its purview.
Several brokers said they were surprised at the severity of the latest credit controls.
Evertrust Rehouse Co (永慶房屋) said that home transactions could plunge as people would have difficulty securing loans, while Sinyi Realty Inc (信義房屋) said people who qualified for favorable lending terms would be the only buyers left, as the entry bar is too high for most others.
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