Stricter property loan limits to moderate market demand

The maximum amount of money home buyers can borrow to purchase their homes has been 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 and Housing Board said in a joint statement.

The moves seek 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 has raised 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 flats, 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 applies to loans for the purchase of properties on or after Sept 30.

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

Stricter criteria also apply when assessing Housing Board flat buyers' eligibility for an HDB concessionary housing loan.

An interest rate floor of 3 per cent for computing the eligible loan amount for HDB flats has been introduced. This means the interest rate used to compute the eligible amount for an HDB housing loan is the higher of 3 per cent per annum or 0.1 percentage point above the prevailing CPF Ordinary Account interest rate.

The new 3 per cent interest rate floor applies to fresh applications for an HDB loan eligibility letter received on or after Sept 30.

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

The Loan-to-Value (LTV) limit for HDB housing loans has been lowered. Buyers are allowed to borrow up to 80 per cent of the flat value, compared with 85 per cent before. In other words, they can borrow less than before.

The lower LTV limit applies 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 is being imposed. Previously, they could buy an HDB resale flat on the open market if they sold 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 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 buying their first HDB flat who 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 also does not apply to those aged 55 and above and their spouses who are moving from a private property to a four-room or smaller resale flat. They can continue to buy two-room flexi flats on short lease and Community Care Apartments, if they are aged 65 and above, from HDB.

Current and former private property owners, regardless of age, who face extenuating circumstances like financial difficulties can approach HDB for help. HDB will assess their situation on a case-by-case basis, the agencies said.