Home buyers using deferred payment schemes will get smaller loan amounts: MAS

Home buyers at High Park Residences showroom, a condo development in Fernvale.

Buyers of private property taking up deferred payment schemes will not be able to borrow as much as they thought they could, following a clarification in loan guidelines.

The Monetary Authority of Singapore (MAS) issued a circular to banks last week saying such schemes should be taken into account when calculating how much a buyer can borrow.

Under deferred payment schemes, introduced for completed projects such as OUE Twin Peaks in March, buyers can move into their new homes once they have exercised the option to purchase and made a small down payment. They will then have to pay the rest of the sum, usually through a loan, within one to three years, depending on the developer's rules.

Buyers in standard purchases of completed properties have to pay the full sum within eight to 10 weeks.

But MAS said deferred payment schemes should be treated as a benefit for the buyer and, therefore, be taken into account when computing a mortgage. As "the borrower can use the deferred amount for other purposes during the deferral period, for example, investing the deferred amount for a return... MAS considers this a benefit to the borrowers", it said.

Financial institutions must now deduct these benefits from the purchase price in calculating how big a housing loan a person can take, added MAS, which provided a formula for banks to account for the value of such benefits.Under existing rules, assuming an 80 per cent loan-to-value ratio, a buyer can take out a $1.6 million loan for a $2 million property. But under the deferred payment scheme, assuming 90 per cent of the purchase price is deferred for a year, buyers can borrow only $1,587,328, said MAS.

MAS added that rental guarantees, where developers give buyers the certainty of rental income for a set period, should also be treated as a benefit and be similarly accounted for when calculating loan amounts. This would apply, for example, to Hilltops, being developed by SC Global, which offers two-year guaranteed rental returns for the luxury Cairnhill project.

An OCBC spokesman said home buyers should be aware that banks will grant a loan based on the adjusted purchase price - that is, the price after the deduction of any discounts, rebates or benefits.

Borrowers buying under the deferred payment scheme "should be aware that their loan amounts will be reduced... (and) must be prepared for a bigger amount for down payment", said Ms Tok Geok Peng, DBS Bank's executive director of secured lending.

Said a CapitaLand Singapore spokesman: "Our stay-then-pay scheme remains attractive as it gives upgraders time to dispose of their existing residential property before taking up a mortgage for the private property, in which case the loan required would be smaller."

Many buyers in Tower 2 units at Twin Peaks have opted for the deferred payment scheme but most have not yet applied for loans.

"Even with the benefit priced in, the scheme still gives good returns on investment if the buyer rents the unit out," said Mr Dominic Lee, a PropNex Realty branch district director who is marketing the property. "Some buyers who defer payment may also be anticipating loan-to-value changes down the road."

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A version of this article appeared in the print edition of The Straits Times on August 16, 2016, with the headline Home buyers using deferred payment schemes will get smaller loan amounts: MAS. Subscribe