MAS restricts loan tenure for residential properties
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The Monetary Authority of Singapore (MAS) will restrict the tenure of loans granted by financial institutions for the purchase of residential properties, effective from 6 October.
MAS’ move is part of the government’s broader aim of avoiding a price bubble and fostering long-term stability in the property market.
The new rules impose an absolute limit of 35 years on the tenure of all loans for residential property. This will apply to loans to both individual and non-individual borrowers, as well as refinancing loans.
In addition, loans exceeding 30 years’ tenure will face significantly tighter loan-to-value (LTV) limits.
MAS will lower the LTV ratio for new residential property loans to borrowers who are individuals, if the tenure exceeds 30 years or the loan period extends beyond the retirement age of 65 years.
For these loans, the LTV limit will be: 40% for a borrower with one or more outstanding residential property loans; and 60% for a borrower with no outstanding residential property loan.
The new rules will apply to both private properties and HDB flats.
“Over the last three years, the average tenure for new residential property loans has increased from 25 to 29 years. More than 45 percent of new residential property loans granted by financial institutions have tenures exceeding 30 years,” MAS said.
“The new rules aim to curb continued upward pressure on residential property prices, driven by low interest rates and rapid credit growth,” the central bank added.
Previous rounds of measures have had a moderating effect on residential property prices. There is also significant supply of housing that will come onto the market over the next two years.
However, prices in both the HDB resale market and private residential property have continued to rise in Q2 and Q3 of 2012.
Private home prices rose 0.5 percent in the third quarter from the April-June quarter, when prices increased by 0.4 percent, while HDB resale prices gained 2.0 percent quarter-on-quarter following an increase of 1.3 percent in April-June.
MAS will also lower the LTV ratio for residential property loans to non-individual borrowers from 50 percent to 40 percent.
For re-financing facilities, the rules will apply where the application date of such facilities is on or after 6 October.
The outstanding loan may be either a loan from HDB or a financial institution regulated by MAS.
Deputy Prime Minister and Chairman of MAS, Mr Tharman Shanmugaratnam, said: “Monetary conditions worldwide are far from normal. QE3 and low interest rates have made credit easy, but this will eventually change. We are taking this step now to require more prudent lending, and will continue to watch the property market carefully. We will do what it takes to cool the market, and avoid a bubble that will eventually hurt borrowers and destabilise our financial system.”
QE or quantitative easing is an unconventional monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective.
Source : Channel NewsAsia – 5 Oct 2012
New move to cool property market
New measures state that buyers taking loans longer than 30 years must pay 40% of purchase price as down payment. -TNP
Linette Heng and Esther Ang
Mon, Oct 08, 2012
The New Paper
The Monetary Authority of Singapore (MAS) introduced new measures to cool the property market yesterday.
Home buyers looking to secure loans of more than 30 years will now
have to fork out 40 per cent of the purchase price as down payment.
Of that, 10 per cent must be in cash.
In its statement, MAS said: "Over the last three years, the average
tenure for new residential property loans has increased from 25 to 29
years.
"More than 45 per cent of new residential property loans granted by financial institutions have tenures exceeding 30 years."
MAS said it has to act, with low interest rates globally and in Singapore likely to persist for some time.
The statement continued: "It will continue to spur demand in the
residential property market, pushing up prices beyond sustainable
levels. The eventual correction could be painful to borrowers and
destabilise the economy."
Potential home buyers are now certain that they will stay away from loan tenures that are beyond 30 years.
Mr Chua Yew Seng, 23, a final-year student at the National University
of Singapore, is thinking of applying for a flat at Sengkang or Buona
Vista next month.
He set a budget of $500,000 for his home and said he would have to take a loan tenure of less than 30 years to finance his flat.
Mr Chua said: "If I have to fork out 40 per cent, it's definitely impossible."
Ms H.X. Kwan, 22, who is looking for a place with her boyfriend, also thinks that a longer loan is not ideal.
She said: "I won't want to be paying off a loan when I'm near
retirement. At that stage, I should be saving up for my dependants."
MAS said long tenure loans pose risks to both lenders and borrowers.
Borrowers may over-estimate their ability to service the loans, and take a bigger loan than they can really afford.
Agreeing, property consultancy SLP International's
research head Nicholas Mak said: "This measure is aimed at discouraging
borderline investors from financially stretching themselves.
"It's about limiting available credit and curbing overbuying," he said.
If anything, this latest MAS measure is "more pre-emptive than
cooling" as banks will be "flushed with liquidity" from quantitative
easing, which will push property prices up because of demand", said
Chesterton Suntec International's director of research and consultancy
Colin Tan.
"This could push people into taking a longer-term loan to buy property," he said.
The people who would be most affected by this measure are those with
outstanding property loans and thinking of buying another property, but
these are "only a minority", Mr Tan said.
Financially strapped
The latest measure would impact all buyers whether it is an HDB flat
to a $10million house "as long as they are financially strapped" said Mr
Mak.
"Previously, a longer term might have enabled them to spread out
their mortgage, but now two things come into play: the retirement age
and the loan tenure."
"If you're 40 years old, you can't borrow up to 26years, it has to be
25 years. If not, you can only borrow up to 60 per cent of the purchase
price," MrMak said.
The maximum tenure of all new residential property loans will be capped at 35 years.
In addition, loans exceeding 30 years tenure or where the loan term
exceeds the age of the borrower beyond 65 yearswill face significantly
tighter loan-to-value limits, Mr Tan said.
A spokesman for Mortgage Supermart Singapore said: "Mortgages on a
short tenure like a five-to-10-year loan would typically mean that
one-third of your monthly instalment would go to paying the interest
while two-thirds of the payment would go to the principal.
"However, a longer tenure like a 35-to-40-year loan would skew the
equation to about two-third interest and one-third principal."
A MAS spokesman said: "In reality, long tenure loans impose a larger
debt repayment burden on borrowers as interest accumulates over a longer
period. When interest rates eventually rise, borrowers who have
overextended themselves will have difficulties repaying their loans."