Malaysian mortgages and home loans: A foreigner's guide

Malaysia has large expat communities, mainly centred around the capital Kuala Lumpur (affectionately known as KL) and stately George Town in Penang. There are also significant numbers of foreigners living elsewhere, such as highland city Ipoh, and romantic Malacca. Although for some time, Malaysia has been encouraging foreign retirees to settle, with specific visas for the purpose, life here isn’t just for those looking for a good life on a fixed income. The burgeoning startup scene in KL means lots of new arrivals are there to work, rather than relax.

Whatever your reason for moving to Malaysia, you might be considering buying a property - to live in yourself, as an investment purchase or to use as a vacation home. Before you take the plunge, it's good to understand the type of mortgages available in Malaysia, and how you might go about making arrangements. This handy guide covers which banks offer mortgage products in Malaysia to non-residents, the paperwork you'll need to secure a loan, the legal ins and outs and how much it might cost.

Mortgages in Malaysia: What types of mortgages are available?

You’ll find a decent range of mortgages available in Malaysia, including flexible loans, and mortgage products which are aimed at those looking for Islamic, Shariah compliant financing. How easy it is to access a loan in Malaysia will depend a lot on your personal situation. Many foreigners are in Malaysia as part of the Malaysia My Second Home (MM2H) programme, which is a visa and support service that's attracted large numbers of retirees and permanent settlers. If you have this visa type you shouldn’t have any problem getting the funds for your new home, because it’s well established and government backed. Visas are issued on a 10 year basis, and banks are therefore less concerned that you might suddenly move on from the country with a loan outstanding.

If you’re not in Malaysia under the MM2H programme then your ability to access a mortgage will depend on what property you want to buy, your financial situation and how much of a deposit you’re able to access. In some cases, it might be easier to find a mortgage in your home country and use that to by your Malaysian home.

Assuming you’re able to access a mortgage product, you’ll find that both fixed and variable rate mortgages are available. The rate used for comparison is usually called the Base Rate (BR). You’ll therefore see mortgages described as BM+1%, and so on, meaning that what you’re charged will be set in relation to the central bank rate plus or minus a fixed margin.

There are products prepared for specific buyers, too, such as loans which fit first time buyers or people looking to refinance a property they already own. Each bank working in this area has a selection of loan options published online, but advise you to talk to a mortgage consultant to check what suits your needs best. Some mortgages will only be offered for the purchase of commercial properties, for example, while others might be more appropriate if you want a buy-to-let or summer home in Malaysia.

Should I go to a bank or use a broker?

Using a broker to get a mortgage will always add costs. However, it can be helpful to ensure you get the best possible deal. If you decide to go it alone, and make arrangements without using a broker, then it’s a good idea to use an online Malaysian mortgage comparison site to see which different banks might offer you a mortgage product, and what the standard rates are. You can then check your eligibility for the products directly with the banks concerned.

As with anywhere in the world, be wary of fraudsters who claim to be brokers - especially if they ask for upfront fees. Take recommendations from friends or family when choosing a mortgage agent, or ask to be put in touch with previous customers for a reference.

What are the legal requirements to get a mortgage in Malaysia as a foreigner?

Foreigners can legally buy property in Malaysia, although there are a number of criteria regarding the type of property you can buy. In general these rules are in place to ensure that expat buyers don't buy up reasonably cheap real estate which is needed for local people. There’s therefore a minimum price set by each state, with expats only eligible to buy property which is above this level. Check out the details for the area you want to buy in, so you know what parameters you have to work with.

When it comes to getting a loan for your property purchase, it's down to the rules of the institution you choose. There are both local and global banking brands operating in Malaysia which offer mortgage products for foreign buyers in Malaysia, so it’s worth checking out a few until you find the right product for you.

How can I get a mortgage in Malaysia as a foreigner?

Getting a mortgage in Malaysia is a little more difficult now than it was before the global financial crisis. However, if you’re in a decent financial position, banks are likely to want to work with you - and participants on the MM2H scheme are especially well served.

Paperwork (documentation)

The exact paperwork you'll need will depend on the bank you use. However, you can expect to be asked for the following:

• Copies of your personal identification documents (passport)
• Proof of legal residence in Malaysia
• Documents to support your application and prove you have enough money to service the loan (usually proof of your wages or a letter from your employer)

You can usually get an offer in principle (pre-approval) on the basis of the above documents. Once you have found the property you want to buy, you’ll have to hand over more paperwork including the Sale and Purchase Agreement and a copy of the deeds to the property.

You might find that you need to have your documents translated by a sworn translator in order for the bank to accept them, depending on their original language.

The step-by-step process

To get a mortgage in Malaysia, you’ll generally need to follow these steps:

• Find a broker who can help you explore your options for a Malaysian mortgage, or research your options independently
• Choose a bank who offers a mortgage that suits your needs
• Provide the paperwork requested and get an offer in principle, sometimes known as mortgage pre-approval
• Find a home you love and agree a purchase price with the seller
• Get a good local lawyer - this doesn’t have to be the same person as the seller, although they may offer to help you in completing the purchase
• You’ll usually have to pay a booking fee of 2% to 3% to finalise your mortgage
• Pay a further 7% to 8% of the cost, and sign the Sale and Purchase Agreement to secure your purchase
• You usually then have three months to finish arranging the mortgage and make the outstanding payment to the seller, and you'll be responsible for servicing the mortgage and paying any outstanding fees

Fees

When you arrange a mortgage, whether you choose to do so in Malaysia or in your home country, you’re likely to have fees to pay such as administrative fees and legal costs. Your mortgage provider might also insist that you have a survey done on the property you're buying, to make sure the construction is sound and that the price you’re paying is fair. The exact costs will vary depending on your circumstances.

In Malaysia, when purchasing a property, you can also expect to pay the following fees:

• Stamp duty, which is banded at between 1% and 3% of the property value, depending on the price you’re paying
• Legal fees plus 6% Goods and Services Tax (including transfer of title)
• Some mortgage products have ongoing commitment or admin fees, or require you to commit to mortgage life insurance as a mandatory requirement

There are also various taxes you’ll have to pay once you have secured your property, and if you sell it within five years, you might find you get another property disposal tax bill, too. Although the fees you’re liable for will depend on the product you use and the type of home you buy, budgeting about 4% to 5% of the overall purchase cost for fees and charges is usually a good idea.

If you’re arranging your home purchase before moving to Malaysia, you might find paying for things a bit difficult unless you’ve already opened a local Malaysian bank account. If you already have a bank account in Malaysia and you need to send money to yourself from abroad to pay for the costs and fees, then it’s important to check the fees you’ll be charged when you make an international money transfer. Often times, your home bank won’t offer you the best deal. Even if they claim to offer fee-free transfers, you can be sure that their cut will be rolled up into a poor exchange rate.

A better option is the use a specialist service like Wise who offers the same real exchange rate you can find on Google and adds only a small, transparent fee.

What are the major banks in Malaysia providing mortgages to foreigners?

How easy it is to get a mortgage in Malaysia as an expat depend on on your visa status and personal finances.

For some people, it's better to get a mortgage in your home country and use it to pay the costs of your home in Malaysia. However, that’s not the case for everyone, and, particularly if you’re here on the MM2H visa, you might be able to get a local mortgage with one of the following banks:

• HSBC Malaysia offer various tailored mortgage loans which might be suitable for a foreigner. If you already bank with HSBC at home, they’re definitely worth talking to
• CIMB Bank Malaysia have mortgage packages aimed at expat buyers
• Maybank offer various different types of mortgage products, which might be suited to expat buyers depending on the situation
• If you’re not sure what loan will suit you, a broker comparison site like iMoney can help you compare options independently, or get quotes from individual banks

Glossary of important terms

If you’re starting to look for your perfect new place in Malaysia, it can help to have a few words of the local language. Here are some important terms to help you:

• Mortgage
• Base Rate (BR)
• A loan-to-value (LTV) ratio
• Repayment mortgages
• Interest-only mortgages
• Fixed rate mortgages
• Variable rate mortgages
• Tracker mortgages
• Islamic finance

Buying a new home is a big step, and when you’re buying in a new country, it can be a daunting process. Understanding your options and getting the right local advice is essential to make sure the process works smoothly.

Do your research and you’ll make sure you get a deal that works for your circumstances. Before you know it, you could be soaking up the sun and enjoying your new home or summer pad in Malaysia.

Good luck with buying your new home!