Credit Tightens As Prices Fall (16 Nov 2008)

As property prices start to fall, home loans became more difficult to acquire.  When value of properties fall down, credit is harder to get as banks and other financial institutions tighten their credit machinery.

Banks grant only 90 percent of the value of the property or its selling price, whichever is lower.  An independent valuation is used to access the worth of the property, so that when there is a difference between the acquisition price and the valuation, the buyer will have to come up with the balance.

But, here is the catch.  Because of falling prices and poor demand in general, banks are being cautious of the future so they tend to lean to lower property valuations.

This is usually experience by most home owners.  For instance, a flat owner in a Spring Grove condominium wanted to avail of lower interest rates.  However, since the value of his property went down, the bank refused to extend him credit.  He had no other option but to raise his own funds.

A worst thing is when the property valued so low by the bank that the buyer, not being able to get financing, had to cancel buying it.  If a buyer realises that his condo unit with an area of 1,200 sq feet is valued less than the amount he was to pay, he surely will cancel the deal.  And nobody can keep this fact from the buyers because they can always check the bank’s valuation and compare it with the purchase price.