Housing loan limitations, including HDB loans, have been tightened in new steps to ca

Housing loan limitations, including HDB loans, have been tightened in new steps to calm the housing market

Total Debt Servicing Ratio, Mortgage Servicing Ratio, and Loan-To-Value limitations have been tightened, and a 15-month waiting time for private property owners interested in HDB resale apartments has been implemented.

Sep 30, 2022

Fresh steps to tighten limitations on house loans, including public housing, will go into force on Friday (Sep 30), the government said late yesterday night, in an effort to guarantee cautious borrowing and reduce demand.

A higher interest rate - 0.5 percentage point higher - will be utilised to calculate the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for residential and non-residential property. The new restriction will apply to loans for the acquisition of real estate where the Option to Purchase (OTP) is granted on or after September 30, 2022, or where the Sale and Purchase Agreement is signed on or after September 30, 2022. The increased interest rate floor will be applied to all property loans, not just home loans.

Private financial organisations will continue to set the real interest rates paid on mortgages.

Not only will a 3% interest rate floor be used to calculate the permissible loan amount accessible to borrowers seeking HDB loans for Housing Development Board apartments, but the Loan-to-Value (LTV) ceiling for HDB housing loans would be reduced from 85% to 80%. The reduced LTV limit will apply to new flat applications for sales exercises that begin on or after September 30, 2022, as well as full resale applications received by HDB on or after that date.

To further cool demand in the HDB resale market, where million-dollar HDB flats continue to change hands, the government would impose a 15-month wait time for private residential property owners and previous private property owners to purchase a non-subsidised HDB resale unit. Private property owners can already acquire a non-subsidised HDB resale unit on the open market if they sell their private properties within six months of purchasing the HDB flat. This will no longer be permitted.

The wait-out time, however, will not apply to seniors 55 and over who are relocating from their private home to a 4-room or smaller resale flat.

According to a joint statement issued by the Monetary Authority of Singapore (MAS), the Ministry of National Development (MND), and HDB, the new requirement is "a temporary measure that will be reconsidered in the future depending on general market circumstances and housing demand."

"Since the government enacted a wide package of measures in December 2021, the HDB Resale Price Index has climbed by more than 5% as of end-Q2 2022, demonstrating a broad-based increase in public housing demand," the government said. Given the clear upward trend in HDB resale prices, MND and HDB will impose a 15-month wait period for private residential property owners (PPOs) and exPPOs to purchase a non-subsidised HDB resale flat as a temporary measure to moderate demand and ensure that resale flats remain affordable for flat buyers, particularly first-timers."

For HDB housing loans, an interest rate floor of 3% - or 0.5 percentage point over the current CPF Ordinary Account (OA) interest rate - would be introduced to calculate the qualifying loan amount. The floor interest rate will apply to new applications submitted on or after September 30, 2022 at midnight. Existing HDB loan applications are unaffected. The new floor will have no effect on the real HDB concessionary interest rate, which remains steady at 2.6 percent per year.

"Market interest rates have risen dramatically," the officials explained in explaining the justification for tougher limitations. They are anticipated to rise further in the future, affecting financing rates for property purchases. The government will restrict the maximum loan quantum limitations for house loans in order to guarantee cautious borrowing and avoid future issues in servicing home loans."

"Mortgage interest rates tied to the 3-Month Compounded Singapore Overnight Rate Average (SORA) have been climbing in recent months," the statement continued. They are likely to climb further in 2023, in tandem with US interest rates, before stabilising at a higher level than the lows of 2013 to 2021."

"In a rising-interest-rate environment, the updated medium-term rate floors guarantee that people borrow responsibly for home purchases." This is crucial since mortgages are long-term obligations that are frequently the household's greatest burden. Some borrowers may need to downsize their anticipated property loans, but as interest rates rise, they will be better able to pay these loans."

The government raised the extra buyer's stamp duty (ABSD) rates for all persons and entities excluding Singapore residents and PRs purchasing their first residential property in December 2021, increasing them by 5 to 15 percentage points. The TDSR and LTV limitations for HDB loans have also been increased.

In the months that followed, the property market experienced a chill as purchasers withdrew, developers postponed new launches, and land sales slowed. Momentum has since resumed, with buyers flocking to new project launches despite record pricing levels, foreign buyers returning in large numbers, and HDB resale prices continuing to rise. The latest tightening measures are anticipated to strike a further shock to the market as buyers and developers alike assess the implications.