Bullshit: My First Home Scheme

"Young working adults can now buy themselves a new home without having to pay a sen in down payment.

Those earning less than RM3,000 a month can obtain up to 100% financing to buy their first home under a new scheme launched yesterday.

The My First Home Scheme, launched by Prime Minister Datuk Seri Najib Tun Razak yesterday, will enable them to buy houses costing between RM100,000 and RM220,000 with a repayment period of up to 30 years.

The scheme sees the participation of 25 conventional and Islamic financial institutions including major banks like AmBank, CIMB, Hong Leong, Maybank, Public Bank, RHB and Standard Chartered.

To qualify for the scheme, which is for both houses under construction and completed properties, house buyers must be those working in the private sector and are confirmed employees with a minimum of six months in the job.

The self-employed do not qualify for the scheme while joint applications are allowed, provided that both are in the private sector and are family members, such as siblings or spouses.

The monthly financing repayment sum must also be not more than one-third of the applicants’ monthly gross income.

However, this sum can go up to 50% of their income if additional credit is permitted under the banks’ underwriting policy." - http://thestar.com.my/news/story.asp?file=/2011/3/9/nation/8218336&sec=nation

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Why is this bullshit?

Consider this:

My gross income is RM 2340 a month. One-third of that is RM780. The current BLR is 6.3%. Assuming the bank lends to me at BLR with no premium, I can borrow
RM 126,000 for a home.

If the premium is 0.5%, I can borrow
RM 120,000.

The salary limit is RM 3000. One-third of that is RM 1000.

At base BLR, a person earning RM 3000 can borrow
RM 160,000.

Assuming the person has good credit, the limit rises to half of their monthly income; i.e. RM 1500 towards the loan. In this case the person can borrow
RM 242,000.

If a person has good credit, would they need this scheme? And would a person survive spending half their gross salary BEFORE deductions on housing? Would I be able to find a house that is not in a slum for RM 120,000?

The real answer to encouraging house ownership is to introduce either

1. A low-interest (below BLR) fixed rate financing scheme.

2. Encouraging developers to build houses within the RM 150,000 price range, which will prevent the creation of slums, as we see now in low-cost housing areas.

For now, this scheme is bullshit.

Check for yourself here:

http://www.vertex42.com/Calculators/home-mortgage-calculator.html