Curbs on long mortgages to prevent buyers from over-extending
By Rachel Chang, The Straits Times, 6 Oct 2012
IN A move that took the market by surprise, the Government introduced new measures yesterday designed to cool the property market and stop home buyers from over-extending themselves.
From today, the Monetary Authority of Singapore (MAS) will restrict all home loans to a maximum of 35 years.
Home buyers who take a loan that lasts more than 30 years, or extends past their retirement age of 65, will now have to fork out significantly more in cash.
Such long loans can now only be up to 60 per cent of the property's value if this is the buyer's first mortgage. That means that he must pay 40 per cent of the price upfront, in cash.
If this is his second or more property loan, the loan limit shrinks to just 40 per cent of the property's value.
The new loan limits and rules also apply to home owners who refinance their loans.
The new loan limits and rules also apply to home owners who refinance their loans.
Analysts said the moves will affect a broad swathe of property buyers and leave only young buyers under the age of 30 untouched.
In a statement last night, MAS explained that it is acting to curb upward pressure on property prices from the current low interest rates worldwide, and the rapid credit growth driven by the US' latest round of quantitative easing (QE3).
"Monetary conditions worldwide are far from normal," said MAS chairman Tharman Shanmugaratnam, who is also deputy prime minister.
But the current climate of easy credit and low rates will eventually change, he cautioned.
MAS said that this is why it is acting now to prevent prices from spiking beyond sustainable levels, so that the eventual correction "which will hurt borrowers and destabilise our financial system" can be softened, if not avoided.
The central bank also revealed the impact of easy credit on home loans over the last three years.
The average tenure for new home loans has risen from 25 to 29 years and currently, more than 45 per cent of new home loans have tenures exceeding 30 years.
In August, a 50-year home loan offered by the United Overseas Bank (UOB) drew the ire of National Development Minister Khaw Boon Wan, who described it as a "gimmick".
Long-tenure loans, said MAS, cause buyers to over-estimate their financial wherewithal.
A rising property market also gives buyers and lenders "false confidence" that the property can always be sold off for a profit if the loan becomes difficult to service.
Analysts interviewed yesterday do not expect property prices to fall drastically in reaction, but they predicted some buyers will exit the market, transaction volumes will cool and price rises will moderate.
In the third quarter of this year, both Housing Board resale prices and private property prices accelerated their climb.
The board's resale price index grew 2 per cent, outstripping the 1.3 per cent growth in the second quarter, while the private property market rose 0.5 per cent, up from 0.4 per cent in the preceding quarter.
The new changes, said observers, would land hardest on older buyers, especially those with more than one property. Young buyers should get away with just paying a shade more every month.
For example, a 40-year-old buyer can now take a loan of only 25 years if he wants to continue to be able to pay the usual 20 per cent down payment.
But if he were to take out the shorter 25-year loan of $800,000 for a $1 million property, this would now mean monthly payments of $3,051, at current interest rates of 1.1 per cent. This is $400 more than if he had a 30-year loan.
But for a buyer like investor Jack Liang, 49, who is on the hunt for his third property, the new rules mean "game over", he said.
If he finds a $1 million property that he wants, he can take only a 16-year loan, up to the retirement age of 65 years old. His monthly repayments will be $4,546, likely more than its rental yield.
Or, he can take a longer loan, but for only 40 per cent of the property's value, as it is not his only housing loan. He must then have $600,000 cash in hand to purchase the property.
"It's time to pull up the handbrake," he lamented.
Tighter rules
- All residential property loans capped at a tenure of 35 years.
- Tighter limits for home loans longer than 30 years or which extend past age 65.
If the borrower has no other home loan, he can now borrow only 60 per cent of the property's value (down from 80 per cent).
If the borrower has other existing home loans, he can borrow only 40 per cent (down from 60 per cent).
- Same rules apply for refinancing loans.
- Non-individual borrowers now subject to 40 per cent loan limit (down from 50 per cent).
* What it should have been
The Straits Times, 7 Oct 2012
Yesterday's reports, "35-year limit set on home loans" and "Banks wait to gauge impact", said that the tighter loan-to-value limits of 60 per cent and 40 per cent also apply to home owners who refinance their loans.
That is incorrect. The new loan-to-value limits apply only to new residential property loans.
Financial institutions may, subject to their credit assessment of the borrower, offer refinancing facilities for the full balance outstanding under a residential property loan.
However, the absolute limit of 35 years applies to refinancing facilities. This means the length of the refinancing plus the period since the start of the borrower's first loan cannot exceed 35 years.
Mortgage limits may deter older investors
Monthly instalments for shorter loans could be higher than rentals
Monthly instalments for shorter loans could be higher than rentals
By Daryl Chin, The Straits Times, 6 Oct 2012
THE latest changes to mortgage rules could deter many house-hunters from buying a new property - or at least give them serious pause, analysts and property market watchers said yesterday.
Chief among this group will be older investors looking to buy a second or third investment property, they noted.
And HDB upgraders who want to get on the private property ladder will also not be spared.
From today, the Monetary Authority of Singapore (MAS) will cap all new housing loans at a maximum allowable tenure of 35 years.
Tighter rules will also apply to borrowers taking loans longer than 30 years, or have their loan periods extend beyond the retirement age of 65.
- If they have no outstanding mortgage, the cash down payment is now 40 per cent of the property's valuation instead of the usual 20 per cent.
- If they already have an existing mortgage and want to take another one for another property, the cash down payment is 60 per cent, instead of the current 40 per cent.
For these borrowers, the only way to avoid paying the additional 20 per cent cash down payment is to opt for shorter loan tenures that do not extend past the age of 65.
But this will mean higher monthly instalments.
PropNex chief executive Mohamed Ismail said that the new rules will hit those who buy investment properties the hardest.
"Investors want to leverage, meaning to put down a smaller financial outlay and get a bigger loan," he explained.
"Essentially, this will force these investors to limit their loans to 30 years or less if they don't want to have their loans expire past 65.
"As a rough estimate, cutting down the loan tenure by five years could mean increasing your monthly loan quantum by some 15 per cent."
Dennis Wee Group spokesman Lee Sze Teck said this will make buyers think carefully before signing on the dotted line.
If loan tenures are capped, monthly instalments could well end up higher than monthly rentals that an investment property can fetch.
"Renters will also rethink buying," he said.
And if investors want to take a longer loan to keep instalments low, they will need to come up with 60 per cent cash, he added.
"Think of it this way: you'll be unaffected only if you are young and buying an affordable mass market condo or a flat direct from HDB," said Mr Lee.
Head of research at property consultancy SLP International Nicholas Mak agreed, saying: "This will affect buyers for all types of property, particularly older borderline investors who are already financially stretched and are on the cusp of investing more.
"The immediate effect is house-hunters are going to take a step back to see if asking prices soften. This might also result in a drop in transactions for the third quarter," he predicted.
Most investors and HDB upgraders The Straits Times spoke to yesterday expressed dismay at the latest tweaks.
Senior manager Dylan Koh, 55, who currently lives in a condo at Mount Sinai, said he had almost bought another one in the same development a week ago.
"But now the chance has passed me by. If I want to get the same unit today, I'll have to pay so much more since my loan tenure will take me past the age of retirement," he said.
Mrs Loh Siew Mee, a 51-year- old full-time investor, said: "I was just biding my time till prices go slightly lower before I jump in. I'm regretting that decision now."
Her landed home in Upper Bukit Timah is fully paid up, but she is servicing two loans for two condominiums in the west. "Now, I can only wait until resale prices come down before I make a considered decision again," she added.
Mr Rupert Goh, who lives in a four-room flat in Ang Mo Kio, is also in a fix.
The 48-year-old IT manager said he would have to rethink his plans to buy an investment property. "It would be impossible for me to come up with so much cash if I want to take a 35-year loan."
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