Mortgage Loans, 2008: Heightened Competition between Banks… Low Interest Rates, Fast Approvals (Current Issue No.2039)

In 2008, financial institutions are expected to place greater importance on home loan extension. Rivalry is likely to become tougher as marketing campaigns are actively launched by large and medium-sized banks, some with funding from foreign ally banks; state-owned specialized banks are also pushing forward in this market. KASIKORN RESEARCH CENTER (KResearch) takes the view that mortgage loans in the system in 2008 will likely grow around 12 percent to total some THB1.646 Trillion, up over the 9.4 percent growth of 2007.

In KResearch's view, this year will be rife with intense price wars in the home loan market. Even though most financial institutions will try to avoid resorting to price competition strategies, it is certain that pricing will remain a major factor when it comes to potential homebuyers' decisions. Some financial institutions are likely to continue to focus on pricing strategies to expand their mortgage loan customer bases this year. Emphasis may be placed on especially low lending rates featuring fixed rates below current MLRs. For instance, loan plans with a fixed rate of, say, 5 percent for 1-3 years, or are interest-free for the first 1-3 months may be offered to attract customers. Apart from these special loan packages, some financial institutions may offer other alternatives to draw clients to them. For instance, more variety in loan products is being developed that will be customized to suit greater diversity in needs; meanwhile, market penetration is focusing more on studies of customer behavior. Other financial products are being packaged in conjunction with housing loans, too. Financial consultation services and faster loan approvals will create distinction in the market.

As for the trend in housing loan approvals in 2008, loan quality will remain of utmost concern for financial institutions. Despite serious rivalry in housing loan business, financial institutions are increasing their caution toward loan approvals. In particular, since the current economy is fending with numerous risk factors, e.g., volatile oil prices, increasing costs of living (that may affect the debt servicing ability of some consumers), etc., credit scoring methodologies have been developed by financial institutions to increase their efficiency in loan approvals, apart from dependency solely on the historical records in credit bureau information.