Tag Archives: Housing Loans

TDSR encourages prudent borrowing: MAS

There have been improvements to the risk profile of borrowers thanks to the Total Debt Servicing Ratio (TDSR) framework, according to the Monetary Authority of Singapore (MAS) in media reports.

Notably, more people are forking out a down payment of at least 30 percent, resulting in a lower debt quantum. The percentage of borrowers with a loan-to-value (LTV) ratio of more than 70 percent – or people who need a down payment of at least 30 percent – has fallen.

Wong Nai Seng, MAS Assistant Managing Director for policy, risk and surveillance, said in Q2 2010, this segment accounted for 77 percent of all housing loans taken out, but it dropped to 66 percent since 2012.

Moreover, the ratio of potentially over-leveraged borrowers has declined sharply. In 2011, the proportion of borrowers with two or more housing loans was at 30 percent, but it is now at 10 percent.

During the first 10 months of the TDSR, lending also decreased. In this period, an average of $2.3 billion mortgages was issued each month, down from $4 billion in the six months prior to its implementation.

“The TDSR is meant as a structural measure for the long term. It aims to strengthen underwriting standards of lenders and also to encourage financial prudence among borrowers and does that by matching the size of the loan to the borrowers’ payment (capacity) so they don’t take on too much borrowings,” said Wong.

Previous cooling measures, such as the tougher LTV rules, also played a role in improving the risk profile of borrowers.

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New benchmark for DBS mortgages

In order to provide borrowers with a more simple and easy-to-understand mortgage package, DBS Bank has established a new yardstick for calculating the interest rates of their housing loans according to media reports.

Dubbed as the fixed deposit home rate (FHR), it is derived from the simple average of DBS Bank’s 12-month and 24-month fixed deposit (FD) rates. At present, the FHR is at 0.40 percent, given the 12-month FD rate of 0.25 percent, while its 24-month rate stands at 0.55 percent.

“The response has been encouraging”, said DBS Bank’s Managing Director Lui Su Kian.

Since the FHR package was introduced around three months ago, over 50 percent of its clients opted for it. Others still favour SIBOR-based mortgages, while the rest prefer fixed-rate loans, noted Lui, who is also the Head of Deposits & Secured Lending at DBS Bank.

Nevertheless, the company still offers housing loans based on the Singapore Interbank Offered Rate (SIBOR), which remains as the most in-demand mortgage at other financial institutions.

“Most consumers lean towards SIBOR rates – they want something simple and easy to understand,” Lui said. These wholesale rates are also accessible, but their formulas are quite technical.

Furthermore, SIBOR rates are more volatile compared to fixed deposit rates. In fact, the most popular mortgage tenure — the three-month SIBOR – ranged from 0.37083 percent to 0.40626 percent in the past two years.

“Hence, FHR will appeal to home buyers who wish to take advantage of the low interest environment and yet have some protection from market movement,” added Lui.