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Singapore – Exemption From Total Debt Servicing Ratio Threshold For Property Loans: Recent Changes.

14 February, 2013

 

Legal News & Analysis – Asia Pacific – Singapore – Construction & Real Estate

 

Introduction


Purchasers of residential properties in Singapore taking loans to finance their purchases are subject to prudential limits on the amounts they are able to borrow and the tenure of their loans. One such limit is imposed by the Total Debt Servicing Ratio (“TDSR”) introduced by the Monetary Authority of Singapore (“MAS”) on 29 June 2013. Basically, under the TDSR framework, a borrower’s total monthly debt obligations must not exceed 60% of his gross monthly income. Another limit applies to the tenure of credit facilities or refinancing facilities for residential property. The limit on tenure for loans relating to HDB flats is 30 years, while that for other types of residential properties is 35 years.


There are certain exemptions to these limits. Notably, borrowers who had entered into a residential property loan before the TDSR rules took effect would be exempt from the TDSR limit provided that they fulfil certain criteria.


MAS has announced that it will be broadening the exemptions from TDSR for residential property loan borrowers with effect from 10 February 2014. This is good news for residential property owners who are considering refinancing the property loans for their owner- occupied homes bought before 29 June 2013.


TDSR Exemption


Under MAS’ revised rules, residential property loan borrowers will be exempt from the 60% TDSR limit as long as they can show (i) that they purchased the property before 29 June 2013; and (ii) that they are owner-occupiers of that property. They do not have to show that they do not own any other property or have any other outstanding property loan, as was the case prior to the change.

 

Mortgage Servicing Ratio Exemption


Mortgage Servicing Ratio (“MSR”) which was imposed by MAS on 12 January 2013 on purchasers of HDB flats, and on 10 December 2013 on purchasers of executive condominiums, limits a borrower’s monthly loan repayment of a bank loan to finance his purchase of an HDB flat or an executive condominium unit to 30% of his gross monthly income. MAS has now granted an exemption from the MSR limit for the refinancing of loans for HDB flats and executive condominium units that are owner-occupied and were purchased before their respective MSR implementation dates.


Exemption from Limit of Loan Tenure


MAS also announced that borrowers of owner-occupied HDB flats or other residential properties whose loan tenures exceed the current regulatory limits (30 years for HDB flats and 35 years for other residential properties) and who purchased their HDB flats prior to 28 August 2013 or other residential properties prior to 6 October 2012 will be exempted from these shorter loan tenure limits imposed under the MSR and TDSR rules should they refinance their loans.


Treatment of Investment Property Loans


The above exemptions only apply to owner-occupied property. For property purchased for investment purposes, the TDSR limit will remain at 60%. However, MAS has granted a concession by permitting purchasers of investment property to refinance their property loans at a TDSR of above 60% if they can fulfil the following conditions:


(i) The property in question was purchased prior to 29 June 2013;

(ii) The borrower satisfies the bank’s or financial institution’s credit assessment criteria;

(iii) The borrower must commit to a debt reduction plan at the point of refinancing; and

(iv) The date of application for the refinancing facility is on or before 30 June 2017.


The recent changes are intended to help ease the debt servicing burden of owners of residential property and to reduce instances of forced sales. The MAS regulations which have been amended as a result of these changes include (i) MAS Notice on Residential Property Loans; (ii) MAS Notice on Computation of Total Debt Servicing Ratio for Property Loans; and (iii) MAS Guidelines on the Application of Total Debt Servicing Ratio for Property Loans.

 

Rajah & Tann

 

For further information, please contact:

 

Margaret Chin, Partner, Rajah & Tann

margaret.chin@rajahtann.com


Elsa Chai,  Partner, Rajah & Tann

elsa.chai@rajahtann.com


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