Tag Archives: Mortgage Servicing Ratio

TDSR curbs should not constrain genuine, long-term local investors

I refer to the report “MAS relaxes TDSR loan curbs for some homeowners” (Feb 11), and welcome the tweak to the loan policy.

The Total Debt Servicing Ratio was introduced last June to encourage financial prudence and discourage people from speculative investment in property.

It has hit home sales and launches in the suburbs and, at this point, any further cooling measures would hurt the genuine, mid- to long-term investors.

There is a limit to how much a developer will lower prices to attract buyers, other than to entice the latter to much smaller, more affordable units.

More investors are looking at neighbouring countries and Australia for more flexible loan criteria, but with similar stringent screening of borrowers’ ability to repay the loan.

From an economic standpoint, one may ask whether Singapore benefits if our people invest their monies overseas. Recent reports about investing in Iskandar Malaysia suggest that more young people want to earn money in Singapore, but spend a luxurious lifestyle where cost of living is lower.

The TDSR hits Singaporean buyers harder than it does foreigners, leading to more co-ownership of private property among family members, who need a bigger loan due to the cash outlay for the Additional Buyer’s Stamp Duty.

It has probably a lower impact on first-time homebuyers than on property investors, more of whom are also turning to commercial/industrial properties for more growth in rental income.

I look forward to a TDSR framework that does not constrain genuine, long-term local investors and diminish their capacity to play critical economic roles here in the coming years. After all, property is a safer investment here than, say, stocks.

from James Poh Ching Ping

Source : Today 17 Feb 2014

MAS eases TDSR restrictions

The Monetary Authority of Singapore (MAS) on Monday eased the restrictive Total Debt Servicing Ratio (TDSR) on certain property buyers.

Below is the full statement from MAS:

The Monetary Authority of Singapore (MAS) has received feedback from borrowers who face challenges refinancing loans for owner-occupied properties which were bought before the introduction of the Total Debt Servicing Ratio (TDSR) rules. MAS has decided to broaden the existing exemption from the TDSR threshold of 60 percent for such loans to ease the debt servicing burden of these borrowers.

Refinancing of owner-occupied property loans

2. Under the revised rules, a borrower who bought a residential property before the TDSR rules were introduced – i.e. the Option to Purchase (OTP) of the residential property was granted before 29 June 2013 – will be exempted from the TDSR threshold as long as he occupies the residential property that is being refinanced. This is a concession compared to the current rules, which also require that he does not own any other property, or have any other outstanding property loan.

3. The Mortgage Servicing Ratio (MSR) will also not apply to the refinancing of loans for HDB flats and Executive Condominiums (ECs) that are owner-occupied and were purchased before their respective MSR implementation dates.

4. A similar concession will apply with regard to loan tenures, for residential properties purchased before the respective implementation dates for the loan tenure limits. In such cases, borrowers whose loan tenures for their owner-occupied residential properties exceed the current regulatory limits will be allowed to maintain the remaining tenures of their loans at the point of refinancing.

Refinancing of investment property loans

5. The TDSR threshold of 60 percent will continue to apply to the refinancing of all investment property loans. This is to encourage borrowers to right-size their loans and thereby reduce their vulnerability to adverse economic conditions or changes in interest rates. However, MAS recognises that some borrowers may face challenges in right-sizing their debt obligations in the short term; the starting level of debt may be too high and there may be significant costs involved if they had to sell their properties to reduce their leverage.

6. Therefore, MAS will allow a transition period until 30 June 2017, during which a borrower may refinance his investment property loans above the 60 percent threshold, provided he meets the following conditions:

  1. the OTP of the property was granted before 29 June 2013;
  2. the borrower commits to a debt reduction plan with the financial institution (FI) at the point of refinancing; and
  3. the borrower fulfils the FI’s credit assessment.

7. The changes are intended to help borrowers ease their immediate debt servicing burdens, while encouraging those who have taken on high leverage on their investment properties to right-size their loans as early as possible.

8. Borrowers should be aware that the current low interest rate environment will not persist indefinitely. When interest rates rise, borrowers will face higher mortgage repayments. Borrowers engaging in refinancing should therefore exercise prudence and review their debt commitments.

9. The revised rules will take immediate effect.

Source: MAS Press Release

11 Feb 2014