New Cooling Measures

[Ringo33]

After J Gateway, Tharman drop this bomb..

MAS Introduces Debt Servicing Framework for Property Loans

Singapore, 28 June 2013 … The Monetary Authority of Singapore (MAS) will introduce a Total Debt Servicing Ratio (TDSR) framework for all property loans granted by financial institutions (FIs) to individuals1. This will require FIs to take into consideration borrowers’ other outstanding debt obligations when granting property loans. They will help strengthen credit underwriting practices by FIs and encourage financial prudence among borrowers.
2 MAS will also refine rules related to the application of the existing Loan-to-Value (LTV) limits on housing loans. These refinements seek to ensure the effectiveness of the LTV limits that were put in place to cool investment demand in the housing market. In particular, they aim to prevent circumvention of the tighter LTV limits on second and subsequent housing loans.
Introduction of TDSR framework
3 MAS conducted a thematic inspection of banks’ residential property loan portfolios in 2012. While banks generally had in place sound policies to assess the credit worthiness of borrowers, the inspection and subsequent surveys revealed uneven practices with respect to the application of debt servicing ratios and highlighted areas for improvement in credit underwriting practices.
4 The TDSR framework will provide FIs a robust basis for assessing the debt servicing ability of borrowers applying for property loans, taking into consideration their other outstanding debt obligations. FIs will be required to compute the TDSR, or the percentage of total monthly debt obligations to gross monthly income, on a consistent basis.2
5 The coverage of the TDSR framework will be more comprehensive than FIs’ current practice. The TDSR will apply to loans for the purchase of all types of property, loans secured on property,3 and the re-financing of all such loans.4

6 The methodology for computing the TDSR will be standardised. FIs will be required to:

• take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower;
• apply a specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR;5
• apply a haircut of at least 30% to all variable income (e.g. bonuses) and rental income; and
• apply haircuts to and amortise the value of any eligible financial assets taken into consideration in assessing the borrower’s debt servicing ability, in order to convert them into ‘income streams’ in computing the TDSR.

7 FIs will be required to verify and obtain relevant documentation on a borrower’s debt obligations and income used in the computation of the TDSR.
8 MAS expects any property loan extended by the FI to not exceed a TDSR threshold of 60% and will regard any property loan in excess of a 60% TDSR to be imprudent.6 The threshold is set at 60% for a start to allow both the FIs and borrowers to familiarise themselves with the TDSR framework and its computation methodology. MAS will monitor and review the 60% threshold over time, with a view to further encouraging financial prudence.
Refinement of rules related to application of LTV limits
9 MAS will refine certain rules related to the application of the existing LTV limits on housing loans granted by FIs. In particular, MAS will require:

• borrowers named on a property loan to be the mortgagors of the residential property for which the loan is taken;
• “guarantors” who are standing guarantee for borrowers otherwise assessed by the FI at the point of application for the housing loan not to meet the TDSR threshold for a property loan to be brought in as co-borrowers; and
• in the case of joint borrowers, that FIs use the income-weighted average age of borrowers7 when applying the rules on loan tenure.8

Measures for the long term
10 The new rules will take effect from 29 June 2013.
11 The TDSR framework and refinements to the rules relating to the application of LTV limits are structural in nature, and will be in place for the long term. They aim to encourage prudent borrowing by households and strengthen credit underwriting standards by FIs.
12 They do not involve changes to the LTV limits on housing loans themselves, which were last tightened in January 2013 as part of the government’s package of measures to promote stable and sustainable conditions in the housing market.9 The current LTV limits are not permanent, and will be reviewed depending on the state of the property market.
13 Please refer to the FAQs on MAS’ website for further details.

[CondoInterested]

wah, cheem leh.

Can explain in shorter words.

[Ringo33]

wah, cheem leh.

Can explain in shorter words.

Buy MM.....

[Grimloq]

wah, cheem leh.

Can explain in shorter words.

Tharman thinks he's very smart when actually he is over micro-managing the market, probably with eventual bad results

[henryhk]

Then tose who buy Jurong gateway today will the measures affect them?

[sillyme]

After J Gateway, Tharman drop this bomb..

Many thanks for sharing. Think it would have an impact on the property market.

[henryhk]

I tink if cant get bank loan, the buyers just need to return the units.....won't lose alot of $

[amk]

Then tose who buy Jurong gateway today will the measures affect them?

New measures start from 29/6 tomorrow. One more reason to close deal and send application today.

[sillyme]

I tink if cant get bank loan, the buyers just need to return the units.....won't lose alot of $

but being there the whole day, finally grabbing the unit and then received this bomb news, think it would be quite a let down.

[mcmlxxvi]

They closed the loophole on borrowing under non-owner name i.e. mortgagor and borrower different person.

Parents cannot take loans off children names liao.

[sillyme]

They closed the loophole on borrowing under non-owner name i.e. mortgagor and borrower different person.

Parents cannot take loans off children names liao.

oh, i understand now. thanks.

[princess_morbucks]

It will affect those who refinance too.

[RCT]

Toooo deep... don't understand

[Ringo33]

Then tose who buy Jurong gateway today will the measures affect them?

no if they sign their otp today.

[Ringo33]

It will affect those who refinance too.

it will affect those who use their siblings and relatives' name to buy property.

[princess_morbucks]

J gateway is not launched yet.
Today was the pre launch.
So potential buyers hand in blank cheque.
If they can't qualify, then just take back the cheque.
I don't think they will lose any money.

[Ringo33]

MCL timing is superb. I am not sure if they have gotten insider information

[star]

They predicting QE4 coming.

[phantom_opera]

interesting ... when economy no good QE comes, property goes up, when Fed threatens to stop QE when economy improves property also goes up

[wind30]

They closed the loophole on borrowing under non-owner name i.e. mortgagor and borrower different person.

Parents cannot take loans off children names liao.

FINALLY.

borrowers named on a property loan to be the mortgagors of the residential property for which the loan is taken;
“guarantors” who are standing guarantee for borrowers otherwise assessed by the FI at the point of application for the housing loan not to meet the TDSR threshold for a property loan to be brought in as co-borrowers; and
in the case of joint borrowers, that FIs use the income-weighted average age of borrowers7 when applying the rules on loan tenure.

Would you believe I actually spent like close to an hour some months back talking to some MAS officer on the phone, explaining to them the average age problem.

The stupid officer still keep trying to defend it and they say the banks will use the "proper" age and they will monitor it.

I was like, duh.... all these measures are in place because the banks cannot be trusted to be prudent. Given clinching a business, they will try to sell the loan by using the youngest age of the borrowers.

I told them specifically that they have to use the income weighted average age so it is CLEAR CUT. why make it so ambiguous???

[princess_morbucks]

Sorry..... what is income weighted average age?

[wind30]

After reading this... if MAS enforces this, I think those people relying on rental income can forget about any refinancing.

Example, if currently you rent your place out for 2k/month, your monthly installment is 2k/month so you happy right? Bank also loan you money, everyone happy.

With this new ruling, rental income is calulated based on 30% discount... so it ends up to be $1.4k. Of these $1.4k, you can only use 60% to finance your loan. That is like 0.84k. So they bank can only loan you up to 0.84k/monthly repayment.... Furthermore, you have to use medium term interest rate 3.5% to calculate repayment...

That is terrible right?

[phantom_opera]

from salary.sg

Banks use the Debt Service Ratio to assess your creditworthiness.
Defined as the monthly loan installment amount divided by your gross monthly income, your DSR typically has to be somewhere in the 35% to 40% region for banks to be happy to grant you that mortgage. (See also past article on second home loan.)
However, the DSR ratio doesn’t say if you’re taking up excessive loans.
You may have a low overall DSR, but due to low interest rates and long mortgage tenors, you may be piling up too much loans. Or maybe your income has just gone up (how nice) , but with savings still remaining low, your DSR may look deceptively good.
It is even possible to have negative net worth with good-looking DSR. Banks don’t care, but I hope you do.
To be safer, you should also look at your Debt to Net Worth ratio.

- See more at: http://www.salary.sg/2009/can-you-af....iXZPeIJa.dpuf

[狮子王]

WAHLAUEH ! NO MORE CM PLEASE ARHHHHHHHHHHH, my balls are shrinking liao la !

[wind30]

Sorry..... what is income weighted average age?

the age will be weighter closer to the higher income earner.

[wind30]

the more I think about it, the more it does not make sense.

This rule now literally makes it IMPOSSIBLE for people relying on rental income to get financing anymore.

[Ringo33]

After reading this... if MAS enforces this, I think those people relying on rental income can forget about any refinancing.

Example, if currently you rent your place out for 2k/month, your monthly installment is 2k/month so you happy right? Bank also loan you money, everyone happy.

With this new ruling, rental income is calulated based on 30% discount... so it ends up to be $1.4k. Of these $1.4k, you can only use 60% to finance your loan. That is like 0.84k. So they bank can only loan you up to 0.84k/monthly repayment....

That is terrible right?

Before you buy property, you sure must have a job and regular income before banks will approve your loan, and they will not factor in the rental income of your yet to be purchase property.

[phantom_opera]

take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower;

e.g. your gross monthly income is 10k, first loan 1.5k, 2nd loan 2k, car loan 1k so total is 1.5+2+1 = 4.5k ... a TDSR of 60% can still pass, tiao bo? and MAS not forgetting to warn that this is just the beginning .. later might be 50% you cannot drag your loan tenure to lower the monthly servicing due to previous CM, now also cannot rely on "children" to max the loan tenure ... all loopholes closed

apply a specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR;

now the previous calculation is based on SIBOR at 0.4%, now if SIBOR up to 2% (the so called medium-term interest rate), the monthly installment might hit 6k so a TDSR of 60% just sui sui, tiao bo?

apply a haircut of at least 30% to all variable income (e.g. bonuses) and rental income; and
apply haircuts to and amortise the value of any eligible financial assets taken into consideration in assessing the borrower’s debt servicing ability, in order to convert them into ‘income streams’ in computing the TDSR.

Now this is interesting, what it is saying is your 10k pm must be very stable employment, if u are a property agent with variable income or rely on existing property rental then must apply discount of 30% ... so stable monthly income will be ok, not stable finish liao

[princess_morbucks]

If you are a freelance worker, is that considered variable income?
What about businessmen, their income is also variable?

[狮子王]

BYE ALL GOOD BROTHERS AND SISTERS, I AM GOING TO ADMIT MYSELF INTO IMH ( INSTITUTE OF MENTAL HEALTH ) LIAO.

GOOD LUCK !