People check out condos at a House and Condo fair held at Queen Sirikit National Convention Center. (Photo: Varuth Hirunyatheb)

Mortgage applications for homes priced below 3 million baht will likely continue to face higher rejection rates over the next two years because of a slowdown in the residential segment.

According to SCB EIC, a research centre under Siam Commercial Bank, house sales priced less than 3 million baht in the Bangkok Metropolitan Region (BMR) are expected to slow for 1-2 years, attributed to a weaker economic recovery, higher regular expenses, and the debt burden on the household sector, especially among the lower to middle-income segments.

Houses in this price range in the BMR represent two-thirds of transferred units and account for one-third of the value of transfers.

The research house noted that interest rates and the loan-to-value (LTV) ratio set by the Bank of Thailand at 90-100% are limiting factors for homebuyers seeking mortgages.

The mortgage rejection rate for houses priced below 3 million baht is expected to increase in line with the property market slowdown for 1-2 years, said SCB EIC.

Last week, the central bank announced a relaxation of the LTV ratio by allowing banks to offer a ratio above 100% solely to homebuyers participating in a debt consolidation programme.

The regular ratio remains unchanged at 90-100%.

Alongkot Boonmasuk, secretary-general of the Housing Finance Association, said the mortgage market is expected to slow in the second half this year, continuing a trend from the first half that aligns with the property market.

Homebuyers with lower to middle incomes, earning less than 30,000 baht per month, remain pressured by loan rejections, he said.

Property developers have shifted focus to buyers earning more than 30,000 baht per month, promoting houses priced 3-7 million baht per unit, said Mr Alongkot.

Developers are also concentrating on foreign buyers with strong purchasing power to support sales, he said.

Given the market slowdown, developers recently requested soft mortgage measures from the Finance Ministry to support the industry and are demanding a further easing of the LTV ratio.

Mr Alongkot said the LTV ratio easing for debt consolidation conditions would not support housing loans nor the property market overall.

"We understand the central bank wants to contain household debt. These restrictions also impact homebuyers, especially those in segments with real demand," he said.

According to Bank of Thailand data, the country's household debt-to-GDP ratio was 90.8% as of the first quarter this year.

Mortgages represented 34% of total household debt, personal loans accounted for 25%, occupation-related loans made up 18%, auto loans 11%, credit cards 3%, and "others" accounted for 9%.