Why It Matters

Total debt servicing ratio (TDSR) tweaks help two groups

The move to fine-tune the total debt servicing ratio (TDSR) is clearly not a relaxation of cooling measures but is best seen as a step to avert hardship during an economic slowdown.

The amended refinancing framework announced by the Monetary Authority of Singapore (MAS) on Thursday will protect both banks and home owners, experts note.

Two groups of owners, in particular, can benefit.

Some owner-occupiers who bought their properties after the TDSR was introduced in June 2013 may not be able to clear the 60 per cent TDSR threshold now, perhaps due to incurring additional liabilities, reduced income or even job loss.

Thursday's rule change means the TDSR threshold will no longer apply if they want to refinance loans for their own homes.

"Although this group of people make up a small percentage, they may need this new guideline more than others," said Mr David Baey, MoneySmart head of mortgage.

Most loans signed in 2013 would now be at rates of between 2.5 per cent and 3.5 per cent.

The deals on offer now could be a three-month Sibor plus 0.75 per cent or less, making rates effectively about 1.62 per cent.

A person with a loan tenure of 20 years and a $500,000 loan could save about $332 a month after refinancing, said Mr Baey.

The rule change also helps people with investment property loans. Previously, they could refinance above the 60 per cent TDSR threshold only if they committed to a debt reduction plan - this varies according to the bank - and applied by June 30 next year.

MAS has now spelt out what the debt reduction plan is and has taken away that June 30 deadline.

Overall, the new rules bode well for existing home owners who might want to take advantage of low floating rates or a fixed rate package, said CBRE Research.

But as much as some in the market may have hoped, they will not affect new demand for homes and do not signal that any changes to cooling measures are nigh.

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A version of this article appeared in the print edition of The Straits Times on September 03, 2016, with the headline Total debt servicing ratio (TDSR) tweaks help two groups. Subscribe