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Thread: TDSR tweak a lifeline for stretched owners: analysts

  1. #1
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    Default TDSR tweak a lifeline for stretched owners: analysts

    http://www.businesstimes.com.sg/arch...lysts-20140212

    Published February 12, 2014

    TDSR tweak a lifeline for stretched owners: analysts

    Property cooling measures to stay, reversal unlikely until 2015

    By Jamie Lee [email protected]


    [SINGAPORE] This week's tweak in the total debt servicing ratio (TDSR) framework is targeted at a small group of stressed households that are struggling to get mortgage refinancing, analysts said in reports yesterday.

    They were referring to the move on Monday by the Monetary Authority of Singapore (MAS) to exempt owner-occupiers from the TDSR cap of 60 per cent - specifically those looking to refinance the homes they bought before TDSR took effect last June 29.

    The cap mandates that a borrower's monthly instalments for all debt-servicing - including mortgage payments - must not cross 60 per cent of his gross monthly income.

    Analysts commented that the revision to the rule, designed to prevent people from over-extending themselves, may suggest that the group of "fringe households" - those with a debt-servicing ratio (DSR) of 40-60 per cent - may be larger than earlier anticipated.

    However, they say that in light of the small numbers affected, the tweak hardly foreshadows a rollback of property cooling measures. Instead, they expect the measures to stay, with some predicting a reversal only next year.

    The exemption also applies to investment property loans, though the borrowers must go through with refinancing by June 30, 2017, and commit to a debt-reduction plan at the point of refinancing.

    Last year, the MAS said that 5-10 per cent of borrowers here risk being over-leveraged - defined as having a DSR of more than 60 per cent - and that this proportion could rise to between 10 and 15 per cent if mortgage rates edge up three percentage points.

    HSBC analyst Pratik Ray said in a report: "Refinance holds will be problematic if the TDSR framework is applied - and an increase in interest rates or loan margins would increase their repayment burden, resulting in possible forced sales."

    Citi analyst Adrian Chua said in a note that stretched borrowers have been held to ransom by lenders in the post-TDSR period.

    Credit Suisse analysts Yvonne Voon and Anand Swaminathan, concurring, wrote in a report: "Post-TDSR, banks raised their spreads, taking the view that the borrower would have no choice but to stay with the current bank", given that refinancing could mean a breach of TDSR.

    Credit Suisse estimates that 40 per cent of property-owners qualify for the TDSR exemption, which took effect immediately on Monday. However, under 20 per cent of them are actually hit, because, given the low interest rates in the last three years, most of them would have already refinanced their loans.

    Mortgage rates typically have a lower spread to the Singapore interbank offered rate (Sibor) in the first two or three years, but jump from the fourth year, noted Citi economist Kit Wei Zheng in a report. This has prompted borrowers to undertake refinancing in the third year to enjoy "teaser" rates again.

    He questioned whether there was a larger proportion of borrowers deep in debt than earlier envisioned. The MAS had said this year that one in five borrowers (20 per cent) has a DSR of 40-60 per cent.

    Mr Kit believes the proportion to be higher; as much as 25-30 per cent of existing borrowers may already have a DSR of more than 40 per cent at the current low interest rates, he said.

    "Even if household balance sheet data suggests more cash than debt on aggregate, the new exemption may hint at a skewed distribution of debt."

    As a whole, analysts predict that regulators would create a cushion for a "soft-deleveraging". Since short-term interest rates are still low, any "meaningful policy reversal" would come only late next year, HSBC said.

    Looking at the impact on banks, Credit Suisse analysts said that the TDSR tweak should boost refinancing volumes - which has historically made up a third of the new-loan market - but may also hit the banks' margins.

    Still, DMG & Partners Securities said in a report that these exemptions are unlikely to stem the decline in new property transactions.

    Recent bank-lending data has signalled weakness in the housing loan market. The net gain in value of all Sing-dollar denominated housing loans was 9.5 per cent in December last year, compared to a year ago, according to preliminary estimates by the MAS. This is poorer than the 15.9 per cent year-on-year growth at the end of 2012.

    DMG & Partners remains "neutral" on the banking sector. Shares of DBS closed flat yesterday at $16.38; UOB was up 0.2 per cent at $19.87, and OCBC gained 0.3 per cent to end at $9.40.

    Credit Suisse likes developers with more overseas and less residential exposure, such as CapitaLand and CapitaMalls Asia (CMA). Shares of CapitaLand rose 1.4 per cent to $2.88, and CMA gained 0.3 per cent to $1.745.

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    http://www.straitstimes.com/archive/...nding-20140212

    Wider mortgage rule exemptions expected to ensure soft landing

    Published on Feb 12, 2014


    THE broadening of exemptions from tough mortgage rules will help property prices ease down gradually rather than go into a tailspin, analysts said yesterday.

    If not for Monday's rule change by the central bank, some home owners may have been forced to sell units if they could not secure refinancing. This would have put further strain on an already faltering market, the analysts added.

    However, they said the wider exemption was unlikely to lift buyer demand or stem the bleeding in home sales volumes, adding that they thought the property market was headed for a soft landing.

    "This measure helps to prevent a sharp price correction," said OrangeTee research head Christine Li.

    The Monetary Authority of Singapore (MAS) is exempting more borrowers from total debt servicing ratio (TDSR) restrictions that took effect in June last year, subject to certain conditions.

    The TDSR caps a borrower's total debt repayments at 60 per cent of gross monthly income.

    Before the wider exemption, some borrowers who were near their refinancing deadlines may have been unable to refinance their home loan if their debt-to-income ratio was already over that limit, Ms Li said.

    These overstretched borrowers could have been "held hostage" by their banks and forced to "accept whatever repricing interest rates they offer", she added.

    Refinancing is when borrowers switch to another bank to get a cheaper home loan, whereas repricing means they stay with their current bank.

    "We are now not penalising consumers retrospectively," said PropNex chief executive Mohamed Ismail.

    MAS said last year that 5 per cent to 10 per cent of households were over the 60 per cent debt-to-income threshold. The proportion of "at-risk" households could grow to 10 per cent to 15 per cent if mortgage rates rise by 3 percentage points, it warned.

    Analysts said MAS likely widened the TDSR exemption to avoid a spate of forced selling by overstretched households, and was not signalling a reversal of its TDSR policy.

    "It is clear that refinancing of homes for such households will be problematic if the TDSR framework is applied," said HSBC senior property analyst Pratik Ray.

    "An increase in interest rates or loan margins would increase their repayment burden, resulting in possible forced sales."

    However, analysts said that avoiding forced sales would not lift buyer demand as curbs still apply to new buyers.

    OSK DMG analysts said in a note yesterday that they still expect property loans to "continue to moderate" in coming months.

    Barclays analyst Tricia Song said the Government may roll back some property market cooling measures, but only if prices fall by 10 per cent to 15 per cent.

    Private home prices slid 0.9 per cent in the fourth quarter last year.

    Ms Song maintained her prediction that home prices will fall 5 per cent this year and another 5 per cent to 15 per cent next year due to a rise in interest rates and oversupply of homes.

    MAS said on Monday that borrowers who bought homes before TDSR kicked in are now exempt from it if they are refinancing the home they live in, even if they own multiple properties or have other property loans.

    Prior to the change, owner-occupiers were exempt from TDSR only if they did not own any other property or did not have any other outstanding mortgages.

    MAS also said that borrowers who bought investment homes before TDSR are exempt from it when refinancing those homes until June 30, 2017, but they must commit to reducing their debt.

    MELISSA TAN

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