POLICY INITIATIVES IN HOUSING AFFORDABILITY: THE VARIABLE DOWN PAYMENT APPROACH

Abstract

The required down payment rate for the housing purchase is an important regulatory tool to control both the homebuyers' accessibility and mortgage affordability level. A high down payment rate may result in the homebuyers not being able to afford the upfront payment in the housing purchase, while a low-down payment rate may result in homebuyers over-stretching his financial limits and ended up not being able to afford the monthly mortgage repayments. It is therefore difficult for the authorities to stipulate a single down payment rate that will optimize the accessibility and mortgage affordability of all the homebuyers. This study attempts to formulate a new housing policy initiative by developing the variable down payment model, whereby instead of having a fixed down payment rate stipulated by the government, it allows the income distribution of the homebuyers to determine their own optimal down payment rate for the house purchase. A simulation of different scenarios on the variable down payment model will be conducted to assess the model's feasibility. This will be supplemented by an analysis of the impacts of this variable down payment model on the potential demand pool for housing. The findings revealed that the variable down payment model optimizes both the accessibility and mortgage affordability of the homebuyers, hence enhancing their overall housing affordability. The increased housing affordability of the homebuyers will be translated into a higher potential demand pool for housing, as homebuyers will be able to afford housing despite their low savings level under this model.