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Singapore Introduces Cooling Measures with stricter borrowing criteria and tighter limits for HDB loans kicking in from Sep30 2022

Posted by alvintay on September 30, 2022

SINGAPORE, 29 September 2022 – The government has implemented the latest round of cooling measures (13th) targeted at the private residential and HDB resale markets, with effect from 30 September 2022. This Cooling Measures is to promote sustainable conditions in the property market by ensuring prudent borrowing and moderating demand.

  • TDSR/MSR for Residential computation 4% (from previous 3.5%) and Non Residential computation 5% (from previous 4.5%)
  • Eligible amount of HDB’s concessionary housing loan will be 3 % or 0.1 % above the prevailing CPF Ordinary Account interest rate – whichever is higher.
  • HDB LTV becomes 80% (from 85%)
  • Wait out period of 15 months after disposal of private residential property before eligible to buy a non-subsidised resale HDB (not applicable to aged 55 and above) (From previous no wait out)

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The authorities noted that market interest rates have risen significantly and are likely to increase further in the future, affecting borrowing costs for home purchases. “To ensure prudent borrowing and avoid future difficulties in servicing home loans, the Government will tighten the maximum loan quantum limits for housing loans,” they said. For property loans from private financial institutions, the medium-term interest rate floor – which is used to compute the total debt servicing ratio (TDSR) and the mortgage servicing ratio (MSR) – has been raised by 0.5 per cent. TDSR refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations – including the loan being applied for – while MSR is applicable to loans for HDB flats. By raising the medium-term interest rate floor, authorities are tightening the criteria to assess a borrower’s ability to repay the loan. This will apply to property loans where the option to purchase (OTP) is granted on or after Sep 30. If there is no option to purchase, it will apply when the date of sale and purchase agreement is on or after that date. The actual interest rates charged for mortgages will continue to be determined by the private financial institutions.

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Stress Test Loan
Stress Test Loan

Take a look at a few examples to understand the impact:

Case Study 1
Case Study 1
Case Study 2
Case Study 2

Therefore, to afford the same property at the same price, households will have to look at cheaper alternatives or come out with more cash for their property purchase. Here are a chart with different property prices vs loan vs Then and Now

Tables of Difference
Tables of Difference

Some existing solution to get more loan will be pledging and Showfund which can seen from below example on the amount of cash required to get a similar loan to before the measure.

Pledging and Showfund
Pledging and Showfund

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For loans granted by HDB, the agency will introduce an interest rate floor of 3 per cent for computing the eligible loan amount. his means the interest rate used to determine the eligible amount of HDB’s concessionary housing loan will be 3 per cent per annum or 0.1 percentage point above the prevailing CPF Ordinary Account interest rate – whichever is higher. The new interest rate floor will apply to fresh applications for an HDB loan eligibility letter received on or after midnight on Sep 30. There will be no impact on existing applications received by HDB before this time. It will also not affect the actual HDB concessionary interest rate, which remains at 2.6 per cent per annum.

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Meanwhile, the loan-to-value (LTV) limit for HDB loans will be lowered from 85 per cent to 80 per cent. This reduces the maximum amount home buyers can borrow from HDB. But the revised limit will not apply to loans granted by financial institutions, which will remain at 75 per cent. “The lower LTV limit will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after Sep 30, 2022,” authorities said. They added that they do not expect this move to affect first-time and lower-income flat buyers significantly, as these potential home owners still receive housing grants of up to S$80,000 when buying a subsidised flat directly from HDB, or up to S$160,000 when buying a resale flat. “They can also tap on their CPF savings to pay for the flat purchase, thereby reducing the loan amount they may need to take,” authorities added.

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And lastly, the Government has imposed a 15-month wait-out period for private home owners before they can purchase a non-subsidised HDB resale flat. This will kick in after they have sold their property. The new rule will also apply to those who sold their private property prior to submitting an application to buy a resale flat. Previously, such property owners were allowed to buy an HDB resale flat on the open market if they sold their private properties within six months of purchaing the HDB unit. The new 15-month wait-out period will not apply to seniors aged 55 and above who are moving from their private property to a four-room or smaller resale flat, the authorities said. The wait-out period for private home owners who are first-timers and wish to apply for the CPF Housing Grant and Enhanced CPF Housing Grant for their resale flat purchase also remains unchanged at 30 months. The new 15-month wait-out period is a temporary measure which will be reviewed.

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“The Government remains committed to keep public housing inclusive, affordable and accessible to Singaporeans. We will continue to monitor the property market and adjust our policies to ensure that they remain relevant,” the authorities said. “We urge households to exercise prudence before taking up any new loans, and be sure of their debt-servicing ability before making long-term financial commitments.”

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All of these came as global interest rate are rising, so can interest rate stay high ? Let explore historical chart

Updated UOB Projection iterest
Updated UOB Projection iterest

It seem we have still a bit to climb before the adjustment. So will the Stress Test interest rate rise again ?

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