The Straits Times
Monday, Jan 14, 2013
NEW rules governing loans for HDB flats have been rolled out to ensure buyers do not overstretch their finances.
Starting on Jan 12, the Monetary Authority of Singapore has capped the mortgage servicing ratio for loans granted by banks at 30 per cent of a borrower's gross monthly income.
There were no caps on this previously and banks were known to grant loans even if the repayments took up as much as 60 per cent of the monthly income, as long as the borrower was credit-worthy.
The new rules also state that if a buyer takes up an HDB loan, his mortgage servicing ratio is now reduced to 35 per cent, down from 40 per cent previously.
Although this new rule applies to both new flats bought directly from the Housing Board and resale units, National Development Minister Khaw Boon Wan said yesterday that it was the latter he was intent on targeting.
"Resale buyers tend to get their loans from commercial banks. Greater restrictions on lending are welcome because excessive credit doesn't do anybody any good, and it's always good to let go of some air from the market," he added.
SLP International's head of research Nicholas Mak said the new rules will force buyers to go for cheaper flats which are smaller or not as centrally located, simply because their purchasing power has been curbed.
Dennis Wee Group spokesman Lee Sze Teck said those who use up to 60 per cent of their monthly income to service their home loans are typically earning decent wages and have a good credit rating.
"But this is not considered prudent, particularly if an emergency crops up or if someone loses his job," he said.
Mr Timothy Kua, director of SmartLoans.sg, cited an example of a buyer who takes up a 30-year loan for a $700,000 flat. The loan is assumed to be 80 per cent of the flat's value, and the interest rate pegged at 1.5 per cent.
Based on a 40 per cent mortgage servicing ratio in the past, he would need to have a gross monthly income of $4,830.
For the same property, now at a 30 per cent ratio, he would need to make $6,440 a month.
"In short, someone making $4,830 could buy a $700,000 property in the past but can technically afford only a $525,000 property now," he said.
House hunters yesterday were taken aback by the stringent rules imposed.
Engineer James Leow, 26, had plans to buy a five-room resale flat near his parents' place in Ang Mo Kio this year.
"It's back to the drawing board for me. I need to rework my finances and see if I can even afford the area in the first place," he lamented.
Another measure, to tighten terms for granting HDB loans, will take effect on July 1. Buyers who go for a flat with less than 60 years remaining in its lease could be disallowed from using their Central Provident Fund savings if the lease is too short, and be forced to take shorter-term loans.
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