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New rules on mortgage lending hit variable income earners

New mortgage lending rules restrict those reliant on commission, bonus

Published on Jul 6, 2013 9:11 AM
 
Potential buyers at the showflat of a condominium in Bedok. The new rules imposed by the MAS last Friday require banks to apply a 30 per cent discount to the annual variable income that borrowers earn. This includes bonuses, allowances, rents from investment properties and commissions. -- ST PHOTO: KUA CHEE SIONG

THE new rules on mortgage lending could leave good earners like remisier Alan Goh out in the cold if they try to take on a bigger home loan.

Mr Goh relies entirely on commissions for his monthly income and, although he earns a comfortable living from stock market trading, he will face tighter restrictions on lending.

The new rules imposed by the Monetary Authority of Singapore (MAS) last Friday require banks to apply a 30 per cent discount to the annual variable income that borrowers earn. This includes bonuses, allowances, rents from investment properties - and commissions, which means Mr Goh is caught in the net.

A new total debt servicing ratio (TDSR) framework also states a borrower's monthly repayments on all loans, including any new mortgage, cannot exceed 60 per cent of his gross monthly income.

 
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Background story

Who will be affected

People likely to be hit by the new curbs:

  • Variable income earners like property agents, insurance agents and the self-employed
  • Borrowers relying on rental income to finance more property purchases
  • High-earning executives in listed firms with variable income like bonuses that could comprise up to 80 per cent of their pay