KUALA LUMPUR: The House Buyers Association (HBA) has come out to say that the chief beneficiaries of intergenerational loans, are only banks and developers, with buyers ony left with undue financial burden.
An intergenerational loan is a type of loan designed to be passed down from one generation to the next, also known as a second-generation or dual-generation loan.
A housing intergenerational loan often comes with extended tenures of 40 years or more, potentially exceeding the borrower's expected retirement age.
They may also offer an option to make a bullet repayment using Employees' Provident Fund (EPF) savings upon reaching retirement.
Meanwhile, if the loan remains outstanding after the borrower retires, the children of the borrower may continue to repay the loan until it is settled.
In October 2024,Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi said among proposals under the National Housing Policy, included the provision of long-term housing loans to address the housing affordability issue.
HBA honorary secretary-general Datuk Chang Kim Loong told Business Times that intergenerational loans will not alleviate the current housing crisis but instead exacerbate the situation in the medium to long term.
Typically, individuals purchase homes to secure a comfortable retirement, but with intergenerational loans, extending the loan tenure to 40 years or more could prevent a borrower from retiring comfortably at age 60.
This is unless the loan is taken out at a very young age.
The HBA highlighted that while the loan may allow the use of EPF savings for repayment upon retirement, the reality is that many Malaysians do not have sufficient funds in their EPF accounts to retire comfortably, let alone cover house loan repayments.
Though the monthly instalments for these long-tenure loans may be lower, borrowers end up paying significantly higher interest over the full term.
The HBA recommends that borrowers should aim for loan tenures of 20 years, extending to 30 years if necessary, but never beyond that.
HBA also raised the issue of loan outstanding not aligning with the remaining loan term where currently, when a borrower makes a monthly payment, the amount is split between interest and reducing the principal balance.
As the loan balance is higher at the start, most of the payment goes toward interest, and the principal reduces slowly, causing the remaining balance to not match the remaining loan term.
For example, if a borrower has a 40-year loan and has repaid for 30 years (75 per cent of the term), they might expect the remaining loan balance to be around 25 per cent of the original RM300,000, or RM75,000.
But, the actual balance is RM117,527, which is 39.2 per cent of the original loan amount while if the borrower had a 50-year loan, after paying for 60 per cent of the term, the outstanding balance would be RM182,702, or 60.9 per cent of the original loan.
Furthermore, the HBA pointed out that intergenerational loans may unintentionally burden the children of borrowers with financial commitments before they are even old enough to make such decisions.
Moreover, if there are multiple children, including those born after the loan is taken, dividing the property can become complex after the borrower's demise.
This situation places an unfair financial burden on the next generation especially when these children begin their own careers and start families, they may struggle to meet their own financial obligations while also managing the inherited intergenerational loan.
HBA said intergenerational loans instead work to benefit short-term homeowners, investors, and property speculators where these individuals typically hold a property for three to five years before selling and moving to another investment.
The HBA also noted that the primary beneficiaries of intergenerational loans are the financial institutions and property developers, rather than the buyers.
Financial institutions profit more due to the extended loan terms, while developers are able to sell properties at higher prices, as these long-term loans make the properties seem more 'affordable' to buyers.
He said while intergenerational loans may offer short-term benefits to some property buyers, the long-term financial consequences for both borrowers and their families are significant, with the main winners being banks and developers.
A Khazanah Research Institute researcher Theebalakshmi Kunasekaran wrote in her view entitled "Affordable Housing or Affordable Debt? had linked rising house prices to longer tenure mortgage repayment periods.