Page 274 - Special Topic Session (STS) - Volume 3

STS543 Muizz A. et al.
consideration the cost of living and the strong growth in house prices, some
low-income borrowers, particularly those who are already highly leveraged,
will no longer be able to qualify for financing

Chart 5: Income Distribution for Chart 6: Income Distribution for
Newly-Approved Personal Newly-Approved Residential
Financing Borrowers Property Loan Borrowers

Source: Bank Negara Malaysia

B. Impact of policies on borrowers’ DSR
For those who are able to obtain personal financing, we found that the
coefficient for policy is consistently negative and significant (Table 2, Eq 1).
On average, the introduction of one additional policy is associated with 1.32
percentage points (ppt) reduction in DSR for personal financing. We also
extend the study to see the impact of the policies on the low-income group.
For this group, we found that the DSR for personal financing declined more
than the other income groups after the implementation of the policies (Table
2, Eq 2).
Interestingly, we found that the coefficient for policy for those who are
able to obtain residential property loans is positive, controlling for borrower
specific factors such as income and age, and changes in the overnight policy
rate (Table 3, Eq 1a, 1b and 2a). This may suggest that while the policies are
expected to reduce borrowers’ DSR for residential property loan, there are
opposing factors, which were not considered in this equation. We postulate
that rising house prices during the period have led to borrowers having to take
on larger home financing, placing upward pressure on their DSR. Controlling
for house prices, we found that this is indeed the case (Table 3, Eq 1c and
2b).
Finally, using house price as the dependent variable, we found that on
average, borrowers purchased more expensive homes even after the
introduction of the policies (Table 4, Eq 1 and 2). This is within our
expectations given accelerated MHPI growth in the period of estimation. While

263 | I S I W S C 2 0 1 9