Saturday, 3 September 2016

Property refinancing: TDSR Rule tweaks not easing of cooling measures, says MAS

Those who refinance may be exempted from TDSR, but such rules still apply to new loans
By Yasmine Yahya, Assistant Business Editor and Rennie Whang, The Straits Times, 2 Sep 2016

Home owners looking to refinance their mortgages will now enjoy more flexibility with the total debt servicing ratio (TDSR).

The Monetary Authority of Singapore (MAS) tweaked the rules yesterday so that under certain conditions, borrowers may be exempted from the TDSR framework when refinancing their loans.

The TDSR rules will still apply to new housing loans and the MAS noted that this move does not represent a relaxation of property cooling measures.

About 2.5 per cent of new home loans are currently above the TDSR threshold.

The MAS said it had received feedback from some borrowers that they were unable to refinance because they could not meet the TDSR threshold of 60 per cent.

This deems that borrowers cannot take on total debt obligations exceeding 60 per cent of their gross monthly income.

Previously, the TDSR exemption was granted only to the refinancing of loans for properties bought before the introduction of the TDSR framework in June 2013.

Now the exemption applies to all owner-occupied housing loans, regardless of when the property was purchased.

Moneysmart's head of mortgage, Mr David Baey, said: "MAS has done a very good job in reducing the burden of people with owner-occupied properties, and who were unable to refinance their loans due to the date restriction and a drop in household income. They are the ones who need it the most."

Ms Wong, 40, who did not want to give her first name, bought a four-room HDB resale flat in late 2013. She noted that while her debt obligations have not risen since she took out her loan, she would likely want to refinance in the near future to take advantage of lower rates.

"At least I know I won't be disadvantaged if I take on more financial commitments," added Ms Wong.

Under previous rules, investment property loans could also be refinanced above the 60 per cent TDSR threshold if the borrower committed to a debt reduction plan and applied for the refinancing before June 30 next year.

Now the MAS has specified that to benefit from the TDSR exemption, the debt reduction plan should involve the borrower committing to repay at least 3 per cent of the loan's total outstanding balance over three years.

The borrower would also have to meet the bank's credit assessment criteria.

Cushman & Wakefield research director Christine Li said the MAS move is a timely one that will ensure the stability of the property market.

"In view of the recent weaknesses in the oil and gas and financial services sectors, retrenchment and pay cuts could affect the home owners' ability to refinance existing home loans," she added.

"While mortgage rates are still low, the inability to refinance under the old TDSR rules could result in some foreclosures where home owners are forced to sell their properties in a down market."

Total debt servicing ratio (TDSR) tweaks help two groups
By Rennie Whang, The Straits Times, 3 Sep 2016

The move to fine-tune the total debt servicing ratio (TDSR) is clearly not a relaxation of cooling measures but is best seen as a step to avert hardship during an economic slowdown.

The amended refinancing framework announced by the Monetary Authority of Singapore (MAS) on Thursday will protect both banks and home owners, experts note.

Two groups of owners, in particular, can benefit.

Some owner-occupiers who bought their properties after the TDSR was introduced in June 2013 may not be able to clear the 60 per cent TDSR threshold now, perhaps due to incurring additional liabilities, reduced income or even job loss.

Thursday's rule change means the TDSR threshold will no longer apply if they want to refinance loans for their own homes.

"Although this group of people make up a small percentage, they may need this new guideline more than others," said Mr David Baey, MoneySmart head of mortgage.

Most loans signed in 2013 would now be at rates of between 2.5 per cent and 3.5 per cent.

The deals on offer now could be a three-month Sibor plus 0.75 per cent or less, making rates effectively about 1.62 per cent.

A person with a loan tenure of 20 years and a $500,000 loan could save about $332 a month after refinancing, said Mr Baey.

The rule change also helps people with investment property loans. Previously, they could refinance above the 60 per cent TDSR threshold only if they committed to a debt reduction plan - this varies according to the bank - and applied by June 30 next year.

MAS has now spelt out what the debt reduction plan is and has taken away that June 30 deadline.

Overall, the new rules bode well for existing home owners who might want to take advantage of low floating rates or a fixed rate package, said CBRE Research.

But as much as some in the market may have hoped, they will not affect new demand for homes and do not signal that any changes to cooling measures are nigh.

TDSR Rules on Refinancing Fine-tuned - 1 Sep 2016
TDSR Rules tweaked to help home owners refinance mortgages - 10 Feb 2014
Fresh curbs on property loans: MAS introduces Total Debt Servicing Ratio (TDSR) framework - 28 Jun 2013
New property cooling measures announced - 11 Jan 2013

No comments:

Post a Comment