Tighter loan limitations in response to banks' waning risk appetite: mortgage brokers

Tighter loan limitations in response to banks' waning risk appetite: mortgage brokers

Sep 30, 2022

The government's motion to restrict how much house purchasers may borrow is mainly in line with banks' dwindling risk appetite, according to mortgage brokers.

The medium-term interest rate floor, which is used to calculate the total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR), will be hiked by half a percentage point for loans for the acquisition of properties on or after September 30.

This is anticipated to guarantee sensible borrowing when interest rates rise, according to a joint statement issued late Thursday by the Housing and Development Board, the Ministry of National Development, and the Monetary Authority of Singapore (MAS) (Sep 29).

The adjustment reduces the maximum amount that purchasers may borrow, but Clive Chng, an associate director at Redbrick Mortgage Advisory, believes banks would have planned to accommodate for rising interest rates by boosting internal stress test rates anyway.

"When interest rates rise, banks have the option to raise the stress test interest rate if they think it essential," Chng explained.

He stated that banks had previously indicated that they would do so if interest rates continued to climb.

According to Wayne Quek, senior mortgage advisor at Home Loan Whiz, banks have stated that they will reduce the TDSR to 4% for refinancing even if the home was acquired before September 30.

According to mortgage brokers polled, the new laws are unlikely to have an immediate influence on mortgage rates.

Darren Goh, executive director of MortgageWise.sg, said he found it "strange and fascinating" that the new measures will raise the floor to either 4 to 5% or the subsequent interest rate, whichever is greater.

The ultimate interest rate is the maximum potential interest rate that may be applied throughout the term of a property loan, excluding introductory or promotional rates.

"MAS is really quite cautious in ensuring that they not only set a higher rate for now, but also ensure that purchasers take into consideration future crucial aspects at the moment of sign-up," Goh added.

Goh noted that banks may need to reassess their spreads if Singapore Overnight Rate Average rates rise, causing their subsequent rates to surpass the 4-5 percent floor.