MAS Property Cooling Measures - June 2013

property cooling measuresThe Monetary Authority of Singapore (MAS) will introduce a Total Debt Servicing Ratio (TDSR) framework for all property loans granted by financial institutions (FIs) to individuals.  This will require FIs to take into consideration borrowers’ other outstanding debt obligations when granting property loans.

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. 

The TDSR rules will apply to loans where the application date is on or after 29 June 2013.

1.       Introduction of Total Debt Servicing Ratio (TDSR)

2.      Refinement of rules related to application of LTV limits

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1.       Introduction of Total Debt Servicing Ratio (TDSR)

The TDSR framework will provide FIs a robust basis for assessing the debt servicing ability of borrowers (includes sole proprietorships and vehicles set up by an individual solely to purchase property) 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. In the case of a joint application for a property loan, the TDSR shall be computed based on the aggregate total monthly debt obligations and aggregate gross monthly incomes of the joint borrowers.   

TDSR = monthly total debt obligations x 100%

                     gross monthly income

The TDSR will apply to loans for:

  • the purchase of all types of property (residential and non-residential),
  • loans secured on property (where a loan is secured by a pool of collateral including property, the TDSR rules will apply if the market value of the property is 50% or more of the value of the total pool of collateral), and
  • the re-financing of all such loans.

Exemptions:

  • loans to corporates, 
  • Existing borrowers that are seeking to re-finance their mortgages if they are owner-occupiers and where –

(i)             the option to purchase (OTP) the residential property was granted prior to 29 June 2013;

(ii)           the residential property is the only property owned by the borrower (either by himself or jointly);

(iii)          the borrower is one of the occupiers of the residential property;

(iv)          the borrower does not have any outstanding loan for the purchase of any other property or the re-financing of such a loan, apart from the residential property being re-financed; and

(v)            the borrower does not have any outstanding loan (either in his own name or jointly with another borrower) otherwise secured on any property, including the residential property being re-financed, or the re-financing of such a loan.

 

An FI should obtain documentary evidence to verify (i) to (v). 

  • borrowers who are owner-occupiers and are unable to meet the existing 30% Mortgage Servicing Ratio (MSR) limit on refinancing loans extended by FIs in relation to HDB flats,
  • where the market value of the property comprises less than 50% of the value of the total collateral pool on which a loan is secured,
  • In addition, bridging loans, under which any balance outstanding shall be repaid within six months, are exempted from the TDSR requirements.

 
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 medium-term interest rate of 3.5% for housing loans and 4.5% for non-residential property loans or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR;
  • apply a haircut of at least 30% to all variable income (e.g. bonuses) and rental income; and
  • apply haircuts to and amortize 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.

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.

MAS expects any property loan extended by the FI to not exceed a TDSR threshold of 60%.

 

2.       Refinement of rules related to application of LTV limits

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 and ownersof 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 borrowers(based on the borrowers’ gross monthly income) when applying the rules on loan tenure.

 

Example income-weighted average age of borrowers

In the case of the tables under sub-paragraph (n), in determining whether the sum of the tenure of the credit facility and the age of the Borrower, at the time of applying for the credit facility, is less than or equal to 65 years, or exceeds 65 years, as the case may be, for a joint application where there are two or more Borrowers, a bank shall use the weighted average of the ages of the Borrowers, which shall be weighted based on the gross monthly income (as determined in accordance with MAS Notice 645 on Computation of Total Debt Servicing Ratio for Property Loans) of the Borrowers. For example, in a joint application where there are two Borrowers:

Borrower A, 25 years old with gross monthly income of $2,500, and Borrower B, 55 years old with gross monthly income of $5,000, the weighted average of the age of the Borrowers is:

[25 x 2,500/(2,500 + 5,000)] + [55 x 5,000/(2,500 + 5,000)]

= 8.3 + 36.7

= 45 years old 

 

Supporting income for computation of TDSR

The following eligible financial assets of the Borrower can be taken into consideration for computation as additional cash flow income. Relevant computation haircuts and limits apply:

(a) liquid assets comprising Singapore dollar notes and coins (including deposits); and

(b) the following assets:

(i) units in a collective investment scheme authorized or recognised by the Authority under the Securities and Futures Act (Cap. 289);

(ii) units in a business trust registered with the Authority under the Business Trusts Act (Cap. 31A);

(iii) debentures or stocks issued or proposed to be issued by a government;

(iv) debentures, stocks or shares issued or proposed to be issued by a corporation or body unincorporated;

(v) structured deposits,

(vi) foreign currency notes and coins (including deposits); and

(viii) gold