MAS Home Loan Rules - 29th June 2013
The Monetary Authority of Singapore (MAS) has set new home loan rules that
banks have to use a standardised set of guidelines to assess property buyers' eligibility to
borrow and discourage lenders from making property loans that result in individual borrowers
using more than 60 per cent of their monthly incomes to service debt. Banks will not be able to
approve a loan if the monthly repayments of a buyer's total debt obligations exceed 60 per cent
of his gross monthly income.
To prevent borrowers from overextending in their property purchases,
MAS has also stipulated a floor in calculating interest payable on loans, even if prevailing
rates are lower. For residential property loans, the minimum rate is 3.5 per cent, while the
rate for non-residential property is 4.5 per cent.
"The TDSR (total debt servicing ratio) will apply to loans for the purchase of all types
of property, loans secured on property, and the re-financing of all such loans," it said.
MAS said the rules will help strengthen credit underwriting practices of financial institutions and
encourage financial prudence among borrowers.
MAS will also refine rules related to the application of the existing Loan-to Value (LTV) limits on
The bank said these refinements seek to ensure the effectiveness of the loan limits that were put
in place to cool investment demand in the housing market.
In particular, they aim to prevent home buyers from circumventing the tighter loan limits on second
and subsequent housing loans.
When working out loans to be granted to home buyers, banks will have to consider the monthly
repayment for the property loan that the borrower is applying for, plus all his other outstanding
What does this mean for those property investor?
The Monetary Authority of Singapore (MAS) has introduced a total debt
servicing ratio (TDSR) framework for all property loans granted by financial institutions (FIs)
and refined certain rules om LTV limits. The key features are:
1) FIs factor in total debt obligations when granting property
2) a medium-term interest rate be applied to property loans (3.5% for
3) property loans not exceed a TDSR of 60%,
4) “guarantors” for a loan not meeting the TDSR threshold be brought in as
5) FIs use the income-weighted average age in cases of joint
What the Bank
Think (extracted from "Sector Flash
Note" of CIMB, 30 June 2013)
While more marginal buyers will be removed from
the equation and demand will continue to moderate, the Bank believes that a housing
collapse is unlikely for a few reasons:
1) FIs have
generally kept to a mortgage servicing ratio (MSR) limit of 30-40%. Guidance from FIs is that
average system MSR is c.28-30% and while average TDSR will be higher, they believe this
ratio is still substantially lower than 60%,
ground checks suggest that while there have been some cases of loans being extended to
"guarantors" to circumvent LTV limits, this trend is not prevalent
The average mortgage-income ratio for private residential properties (based on top income
bracket quartile) remains strong at 25% currently and 33% on a normalised interest rate of 3.5%,
by our estimates. While there are still supply issues, we believe that the sector is in better
financial health than in 2007-08.