Banks to expand "home-for-cash" lending

Banks expect to expand their extension of secured loans for home-owners who need cash for personal purposes.

Many people looking for a personal loan will favour this option, as the interest charged is three to four times less than that for personal loans, which charge up to 28 per cent.

Thakorn Piyapan, senior vice president of the Consumer Marketing Department at Bank of Ayudhya, said that next year BAY would focus on extending secured loans to home-owners who need cash.

This part of the market, under which consumers can use their home as collateral for a personal loan, is known as the "home for cash" segment.

BAY's current non-corporate portfolio comprises mortgages (70 per cent), refinancing loans (15 per cent) and home for cash (15 per cent). It expects to expand the home-for-cash portion to 20-30 per cent of new lending next year.

BAY charges interest at the minimum loan rate throughout the period of a personal loan, which can be up to 30 years. Its MLR is currently 6.25 per cent.

Rungruang Sukkirdkijpiboon, executive vice president and head of the Retail Lending Products Division at Siam Commercial Bank (SCB), said the bank had soft-launched a home-for-cash product among its customers over the past year. It intends promoting it more widely next year.

SCB expects the current proportion of this type of credit - 5 to 10 per cent of overall lending - will likely expand to 15-20 per cent of new lending next year.

"Previously the bank paid attention to lending to people buying a home, but it will now focus more on lending to home-owners who need cash for personal purposes, such as investment in small businesses or for education. I believe this market is larger than the home-buyer market and that it will be another pillar of the bank's loan expansion," said Rungruang.

SCB charges home-for-cash borrowers the minimum retail rate in the first year, then MRR plus 1 to 2 percentage points. The maximum loan period is 15 years.

The highest credit line is 80 per cent of the assessment price, up to Bt5 million. The bank's MRR is currently 6.45 per cent.

Paiboon Larprogejarugoon, first vice president of the Mortgage Business Department at TMB Bank, said the home-for-cash market was in customer number terms much larger than the home-buyer market. The latter is only 200,000 homes per year, while the former runs into millions.

This type of loan previously accounted for 5 to 10 per cent of the TMB's mortgage lending, but it has now expanded to 15-20 per cent.

Meanwhile, TMB's Flexi Home Loan, which was launched a few months ago, helps promote the home-for-cash product, as it allows borrowers to use 20 per cent of the credit line when they need cash.

TMB charges MLR of 6.25 per cent for a maximum loan period of 15 years and a maximum credit line of 85 per cent of the assessment price, not exceeding Bt5 million, for home-for-cash credit.

Kasikornbank offers the same conditions as TMB in terms of loan period and credit line, but normally charges interest at MLR - currently 5.85 per cent - for loans higher than Bt500,000. Loans up to this amount are charged at MLR plus 0.5 percentage point.

The bank is however currently cutting the rate by 0.5 percentage point for both categories in the first year.

Borrowers can also choose to have an overdraft of 50 per cent of the loan amount should they need cash, and can use the credit line immediately.

First senior vice president Chatchai Payuhanaveechai said Kasikornbank still concentrated mainly on the home-buyer market. The home-for-cash portion of its portfolio is just 5 to 7 per cent of new lending, while the refinancing-loan portion is 4 to 5 per cent and roughly 90 per cent is loans for home buyers.