New cooling measures: Tighter housing loans, 15-month wait for private home owners to buy HDB flats

The cooling measures come after interest rates have risen significantly and are likely to continue rising. PHOTO: ST FILE

SINGAPORE - The maximum amount of money home buyers can borrow to purchase their homes will be tightened with immediate effect, so that borrowers avoid future difficulties in servicing those loans.

The cooling measures come after interest rates have risen significantly and are likely to continue rising, the Monetary Authority of Singapore (MAS), Ministry of National Development (MND) and Housing Development Board (HDB) said in a joint statement issued just after 11.40pm on Thursday.

The authorities will take several measures to ensure home buyers borrow within their means and to moderate demand in the property market. These take effect from Sept 30.

For property loans granted by private financial institutions, MAS will raise the medium-term interest rate floor used to compute the total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR) by 0.5 percentage point.

TDSR refers to the portion of a borrower's gross monthly income that goes towards repaying all monthly debt obligations, while MSR, applicable to loans for HDB purchases, refers to the portion that goes towards repaying all property loans.

This means that MAS is using stricter criteria to assess borrowers' ability to repay, and therefore qualify for, a loan.

This will apply to loans for the purchase of properties where the option to purchase or sale and purchase agreement is granted on or after Sept 30.

The actual interest rates charged for mortgages will continue to be determined by the private financial institutions.

Stricter criteria will also apply when assessing housing board flat buyers' eligibility for a HDB concessionary housing loan.

From Sept 30 onwards, an interest rate floor of 3 per cent for computing the eligible loan amount for HDB flats will be introduced.

This means that the interest rate used to compute the eligible loan amount for a HDB housing loan will be the higher of 3 per cent per annum or 0.1 percentage point above the prevailing CPF Ordinary Account (OA) interest rate.

The new 3 per cent interest rate floor will apply to fresh applications for an HDB Loan Eligibility (HLE) letter received on or after Sept 30. There will be no impact to existing HLE applications received by HDB before 12am on Sept 30.

The interest rate for the HDB housing loan will remain unchanged at 2.6 per cent per annum from Oct 1 to Dec 31.

The loan-to-value (LTV) limit for HDB housing loans will be lowered from 85 per cent to 80 per cent.

This means that buyers will be allowed to borrow up to 80 per cent of the flat value compared to 85 per cent before. In other words, they can borrow less than before.

The lower LTV limit will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after Sept 30.

To moderate demand in the HDB resale market, a wait-out period of 15 months for current and former owners of private residential property to buy a non-subsidised HDB resale flat will be imposed from Sept 30 onwards. Currently they are allowed to buy a HDB resale flat on the open market if they sell their private properties within six months of the HDB flat purchase.

Former private property owners refer to those who had disposed of a private property prior to submitting an application to buy a resale flat.

The agencies said this is a temporary measure taken "to moderate demand and ensure that resale flats remain affordable for flat buyers, especially for first-timers".

The measure will be reviewed based on overall demand and market changes, they added.

It comes after the HDB Resale Price Index has increased by more than 5 per cent as at the end of the second quarter of this year.

The wait-out period for private property owners who are first-timers and wish to apply for the CPF Housing Grant and Enhanced CPF Housing Grant for their resale flat purchase, remains unchanged at 30 months.

The wait-out period will also not apply to seniors aged 55 and above and their spouses who are moving from their private property to a 4-room or smaller resale flat.

These seniors can continue to buy 2-room Flexi flats on short lease and Community Care Apartments, if they are aged 65 and above, from HDB.

In addition, current and former private property owners, regardless of age, who face extenuating circumstances such as financial difficulties, may approach HDB for assistance, the agencies said.

HDB will assess their situation on a case-by-case basis, they added.

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