How to Avoid 70% Financing Rule on the Third Residential Property Purchase

Those who don’t buy a lot of property may not know this, but Bank Negara has implemented a new rule saying that if you buy your 3rd residential property, you can only get 70% financing. Watch the video embedded below for more explanation.

Let me explain how you might be able avoid this.

In Malaysia, let’s say you buy your first house at RM100,000. For the first house, you can get a 90% loan from the bank. Then you buy your second house at RM200,000. Even though you still have your loan for the first house, you can still get a 90% loan from the bank. This means you only have to pay the 10% down payment or RM200,000 in this case.

If you want to buy a third house or more, you can only get a maximum loan of 70%. This is the rule.

I already bought three houses before I got the fourth one, joint-name with my wife – this is before the new rule. So, we, kind of, used up our entire quota. I went to our bank and asked the marketing official, “I only have 60% left to pay for this property, and 50% for the other property. Can I get a 90% loan for the third one?” The answer is “No.” As long as you have two outstanding loans, even if only by 10%, you will not be able to get a 90% loan on the third house. The only way around this and get 90% is to settle one of your loans, then show the Loan Settlement Letter to the bank that is going to finance your new house purchase.

Some banks are quite stringent. Like for my case, all of the houses are of joint ownership between my wife and me. So, I go to our bank and asked, “Hey, the S&P agreement has my name and my wife’s name on it. Can I refinance this loan with only my name so that my wife isn’t associated with the loan?” This means I refinance the first two houses with only my name so that my wife can get the third house for herself and get a 90% loan. In this case, the S&P will have both me and my wife, but only one of us will be the borrower. You’ve got to be careful with choosing the bank because not all banks can do this, although most banks can.

What if instead of husband and wife, it is brother and sister? You have to check with the bank, as in the case of brother and sister only some banks can accommodate this. I think OCBC can, but you have to check with them.

This arrangement will be based on trust. For example, the sister sells her portion to the brother, and the brother is now the sole owner of the house. But, if the sister paid for half of the property, she would also want to be named as an owner, right? You can always check with your banker on how and if it’s possible to do this.

Let’s say you buy your first house, and then you buy your second house, and want to get a third house and still get a 90% loan. There is, in fact, another solution. There is a body called the MBSB or Malaysia Building Society Berhad, which can give you a loan above 80% even if it’s your third property. I think they can give up to 85% or something, if not 90%. The disadvantage here is that their interest is higher than the banks, normally like BLR-1% or something. You can check with MBSB.

Another trick is to find commercial properties as the rule only applies to residential properties. If you can find a commercial property with a better yield, you can switch your portfolio – sell your residential property, and get a commercial property. Commercial properties don’t have the same restrictions.

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