Banks say loan repayment ability still key even with easing of total debt servicing ratio
Saturday, March 11, 2017
by Siow Li Sen
THE government's easing of the debt ratio will give flexibility to home owners looking to monetise their property but borrowers need to think of their repayment ability, banks said on Friday.
The total debt servicing ratio (TDSR) will no longer be applied from March 11 for mortgage equity withdrawal loans that have a loan-to-value (LTV) ratio of 50 per cent and below, the government said.
This move gives homeowners, especially business owners and people in semi-retirement, an added option to generate cash flow by monetising the value of their properties, said a DBS Bank spokesman. The 50 per cent loan-to-value limit will encourage homeowners to continue to practise financial prudence and do not overleverage, he said.
"A mortgage equity withdrawal loan is still a mid to long term financial commitment which requires monthly loan repayments. We advise all homeowners to exercise financial prudence."
Relaxing the TDSR on mortgage equity withdrawal loans does not mean banks will ease up on their credit assessment and the amount borrowers can unlock from their property would depend on factors such as age, said one industry source. Borrowers would still have to demonstrate their ability to repay the loan, and that would depend on their income stream. Retirees intending to monetise their property will also face limits due to their age.
The DBS spokesman added that borrowers need to fully understand their needs and think how they will be using this increased cash flow. He said that the mortgage equity withdrawal loans would be term loans that require monthly repayments and the tenure depends on the age of the customer, like a housing loan.
"We encourage them to speak with their banker to explore possible options including understanding how such a loan could increase their monthly financial commitment," he said.
The Monetary Authority of Singapore (MAS), together with the ministries of finance and national development said in a joint statement that the current set of property market measures "remain necessary to promote a sustainable residential property market and financial prudence among households".
On the TDSR, MAS said that borrowers had given feedback that the current framework had limited their flexibility in monetising their properties in their retirement years.
A Maybank spokeswoman said that the revision in the TDSR framework for equity withdrawal loans was positive news for private property home owners with low leverage on their property. "Notwithstanding that there may be no requirement to apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50 per cent and below, the bank will rely on its internal credit assessment when evaluating such cases."