Wednesday, 12 February 2014

TDSR Rules tweaked to help home owners refinance mortgages

By Melissa Tan, The Straits Times, 11 Feb 2014

THE central bank has made it easier for home owners to refinance their existing mortgages.

It yesterday widened an exemption on tough mortgage rules to include more borrowers who bought their residential properties before the total debt servicing ratio (TDSR) framework took effect in late June last year.

Mortgage consultants and banks welcomed the move, saying it was fair to those home buyers. But while some market watchers wondered whether this hinted at a relaxation of cooling measures, others said it was not a sign that the Government was easing curbs.

Under the revised rules, home owners who are refinancing the loan for the home they live in will be exempt from meeting the TDSR requirement even if they own other properties and are servicing other property loans, the Monetary Authority of Singapore said.

Previously, owner-occupiers were exempt from the TDSR only if they did not own any other property or did not have any other outstanding mortgage.

The TDSR framework stops borrowers from taking or refinancing home loans that will bring their total monthly debt repayments to over 60 per cent of their gross monthly pay. Those who bought homes as investments before June 29 last year also received a reprieve from the TDSR limit, though subject to conditions.

MAS yesterday said it would "allow a transition period" until June 30, 2017, during which borrowers can refinance loans for their investment homes above the 60 per cent limit. However, they must commit to a debt-reduction plan with their bank at the point of refinancing and must also fulfil the bank's credit assessment.

The rule changes are meant to "help borrowers ease their immediate debt-servicing burdens, while encouraging those who have taken on high leverage on their investment properties to right-size their loans", MAS added.

Mortgage consultants said borrowers will benefit from the change as some were previously stuck with their existing loans.

Mr Alfred Chia, chief executive of financial advisory firm SingCapital, said many people were tied in, which helped banks "tie down their clients".

Banks yesterday said they welcomed MAS' move. "Some borrowers with good reasons to refinance will now face less difficulty. The older home loans were not assessed with the new TDSR rules and hence the exemption... is therefore fair," said Ms Koh Ching Ching, group corporate communications head at OCBC.

But market watchers' views differed on the implications. "It could be a prelude to more relaxation of cooling measures," said real estate lawyer Lee Liat Yeang.

Taking a different view, Citi economist Kit Wei Zheng said in a note that since the TDSR rules still applied to new home buyers, "we hesitate to call this a property relaxation measure".

Apart from the TDSR, some owner-occupiers were also given exemptions from mortgage servicing ratio (MSR) rules and loan tenure limits yesterday. Those who bought HDB flats or executive condominium units before the MSR rules kicked in - which capped monthly home loan repayments at 30 per cent of gross income - are exempt from those rules when refinancing their homes, MAS said.

It added that a similar concession applies to loan tenure limits, for owner-occupied homes bought before the implementation dates for those rules. Borrowers whose loan tenures exceed the current regulatory limits can now keep the remaining tenures of their loans when they refinance.

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