Rules for new housing loans you should know when purchasing property in 2022 and beyond.
Singapore’s government released a raft of measures to address the rising housing prices in December 2021. Despite the COVID-19 pandemic, there has been an increase in transaction volumes for private housing and Housing & Development Board (HDB) resale flats. With the prices of public and private homes skyrocketing, the government introduced several measures including:
- Raising the Additional Buyer’s Stamp Duty (ABSD) rates
- Tightening the Total Debt Servicing Ratio (TDSR)
- Lowering the Loan-to-Value (LTV) limit for loans from HDB
In this article, we look at the key measures introduced by the government and the impact they have on those seeking loans to buy housing. We’ll give you insight on how much you can borrow for your home loan.
New housing rules in Singapore
Buying your first property is an exciting and positive endeavour, and the government wants to make sure it remains so. The rules introduced in December seek to ensure that borrowers don’t over-borrow when purchasing properties. Since property loans are long-term liabilities, it’s important to ensure financial prudence. In this section, we look at the new rules and how they affect you.
In a nutshell, here are the main objectives of the new housing rules:
- Make sure borrowers don’t over commit their income to buy properties
- Ensure borrowers don’t circumvent the LTV and TDSR limits
- Keep the property market from over-inflation
- The housing rules will strengthen the credit standards in financial institutions
- Guarantee the long-term financial health of households
Let us review each of the measures introduced and how they impact your borrowing.
Tightening of Total Debt Servicing Ratio
TDSR is the portion of a borrower’s gross monthly income that goes into settling debt obligations including the expected loan. TDSR was tightened from 60% to 55%. The proportion of income used for loans should not exceed 55% of the gross monthly income.
The revised rates apply to loans to purchase property where Option to Purchase (OTP) has been granted on or after 16 December 2021. The revised rates also apply to mortgage withdrawal loan applications made on or after 16 December.
TDSR is crucial as it ensures financial prudence among borrowers and makes sure there is long-term sustainability in the property market. To calculate your TDSR threshold, you need to consider the monthly debt obligations you currently hold.
For instance, if you have a loan with monthly instalments that take up 10% of your income, then you can only access further loans with repayments that are equivalent to 45% of your monthly income. In rare cases, financial institutions can lend to a borrower whose TDSR is above 55% after a thorough credit evaluation. Financial institutions have an obligation to thoroughly report, document, and report such loans. The institutions are required to:
- Document the reasons why they are offering loans above the threshold.
- Ensure that the exceptional cases are subject to enhanced credit evaluation.
- Come up with a plan with borrowers for how they will reduce their debts.
- File a report with the Monetary Authority of Singapore (MAS) on exceptional cases. The report should include:
- Profile of the borrower including age and income
- Loan details include TDSR, LTV ratio, and loan tenure
- Reasons why there is an exception
Raising of Additional Buyer’s Stamp Duty rates
The rising prices of property triggered the government’s raising of ABSD rates for buyers.
First-time residential property buyers who are Singapore permanent residents or citizens are fortunate as there is no increase in ABSD rates for them. They are expected to pay 5% and 0% respectively.
However, Singapore citizens will pay a ABSD rate of 17% when purchasing their second house (up from 12%).
The government raised the ABSD rate to 25% for Singapore citizens purchasing their third and subsequent properties (up from 15%). The rate also applies to Singapore permanent residents purchasing their second property (up from 15%), and they will have to pay ABSD of 30% for their third and subsequent properties (up from 15%).
The ABSD rate has increased to 35% (from 25%) for entities purchasing residential properties.
Married couples (with at least one Singapore citizen) can apply for a ABSD refund if they sell their first house within six months from the date of buying their second house, or the Temporary Occupation Permit or Certificate of Statutory Completion being issued for the second residential property if it’s incomplete at the time of purchase.
The ABSD rates are not applicable for those buying HDB flats or Executive Condominium properties that have an upfront remission if one of the acquirers is a Singapore citizen.
Also, the new rates apply if the OTP is given on or after 16 December 2021. The old rates may apply under the following conditions:
- OTP is granted on or before 15 December 2021
- The OTP is exercised on or before 5 January 2022
Tightening of Loan-to-Value limit for HDB loans
The LTV limit is the maximum amount of loan a borrower can get, as a percentage of the property’s value. You calculate LTV by dividing the loan amount by the property value.
The LTV limit for HDB housing loans was revised from 90% to 85%. The new limit applies to new flat applications or resale applications that happen on or after 16 December 2021. The LTV limit for loans from financial institutions remains at 75%.
How much can you borrow to purchase a property in Singapore?
The amount of money you can borrow to purchase a property depends on the LTV limit. If you are buying a HDB flat and you want to get a bank loan, then you will have a 75% LTV limit, while buying using HDB concessionary loans gives you an LTV limit of 85%.
When using a bank loan, you can pay 20% of the remaining amount using cash or your CPF Ordinary Account. The balance of 5% must be paid in cash. On the other hand, if you opt for the HDB concessionary loans, you can pay the 15% balance using either cash or your CPF account, or a combination of both.
For example, if you want to buy a HDB property costing S$ 600,000 there are two scenarios.
Scenario 1: Using HDB concessionary loans
According to MAS’ housing loan rules when buying using a HDB concessionary loan you will have a LTV limit of 85%. Hence you can borrow S$510,000.
The balance of 15% (S$90,000) you can pay in cash or use your CPF Ordinary Account to pay.
Scenario 2: Using a loan from a financial institution
If you borrow from a financial institution such as a bank to buy property, you will qualify for a LTV limit of 75%. Hence you can borrow S$450,000.
The maximum LTV limit depends on various factors. Listed below are the main factors that will determine the LTV percentage you get:
- Amount of outstanding loans – home or otherwise. You must comply with the TDSR of 55%.
- Location of the property
- The outstanding lease on the property
- Your credit score
- Loan tenure and your age
You can make use of these details to select a loan type that will best meet your financing needs.
If you opt for a home loan from a financial institution, look out for the best deals. Browse the best home loans and choose one that suits your needs.
Read these next: