Updated from : The Business Times, 30 Sep 2022
FRESH measures to tighten limits on housing loans – including for public housing – will come into effect Friday (Sep 30), in a bid to ensure prudent borrowing and moderate demand, the government announced in a statement released late last night.
A higher interest rate – 0.5 percentage point higher – will be taken as the medium-term interest rate floor used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for residential – and non-residential – property. The new limit will apply to loans for the purchase of properties where the Option to Purchase (OTP) is granted on or after Sep 30, 2022, or where there is no OTP, the date of the Sale and Purchase Agreement is on or after Sep 30, 2022. The higher rate floor will apply across all property loans, not just home loans.
The actual interest rates charged for mortgages will continue to be determined by the private financial institutions.
For loans for public housing flats, not only will an interest rate floor of 3 per cent be used for computing the eligible loan amount available to borrowers seeking HDB loans for Housing Development Board flats, the Loan-to-Value (LTV) limit for HDB housing loans will be cut from 85 per cent to 80 per cent. The lower LTV limit will apply to new flat applications for sales exercises launched, and complete resale applications received by HDB on or after Sep 30, 2022.
To further moderate demand in the HDB resale market, where million dollar HDB flats continue to change hands, the government will impose a wait-out period of 15 months for private residential property owners as well as former private property owners to buy a non-subsidised HDB resale flat. Currently, private property owners are able to buy a non-subsidised HDB resale flat on the open market provided they sell their private properties within six months of the HDB flat purchase. This will no longer be allowed.
The wait-out period will however not apply to seniors aged 55 and above who are moving from their private property to a 4-room or smaller resale flat.
The new requirement is “a temporary measure which will be reviewed in future depending on overall market conditions and housing demand”, said a statement jointly released by the Monetary Authority of Singapore (MAS), the Ministry of National Development (MND), and HDB.
“Since the government implemented a broad package of measures in December 2021, the HDB Resale Price Index has increased by more than 5 per cent as at end-Q2 2022, reflecting a broad-based increase in public housing demand. Given the clear upward momentum in HDB resale prices, MND and HDB will introduce a wait-out period of 15 months for private residential property owners (PPOs) and exPPOs to buy a non-subsidised HDB resale flat as a temporary measure to moderate demand and ensure that resale flats remain affordable for flat buyers, especially for first-timers.”
For housing loans granted by HDB, HDB will introduce an interest rate floor of 3 per cent – or 0.5 percentage point above the prevailing CPF Ordinary Account (OA) interest rate – for computing the eligible loan amount. The interest rate floor will apply to fresh applications received on or after Sep 30, 2022 at midnight. Existing HDB loan applications will not be affected. Nor will the new floor affect the actual HDB concessionary interest rate, which stays unchanged at 2.6 per cent per annum.
In explaining the rationale for tighter limits, the authorities said: “Market interest rates have risen significantly. They are likely to increase further in future, which will affect borrowing costs for home purchases. To ensure prudent borrowing and avoid future difficulties in servicing home loans, the government will tighten the maximum loan quantum limits for housing loans.”
The statement added: “Mortgage interest rates pegged to the 3-Month Compounded Singapore Overnight Rate Average (SORA) have been rising in the past months. They are expected to rise further in 2023 along with US interest rates, before settling at a higher level compared to the lows during the period 2013 to 2021.”
“The revised medium-term rate floors ensure that households borrow prudently for their property purchases in a higher interest rate environment. This is necessary as property loans are long-term commitments and are often the households’ largest liability. Some borrowers may need to right-size their intended property loans but will be better able to service these loans when interest rates rise.”
In December 2021, the government slapped on higher additional buyer’s stamp duty (ABSD) rates – up by 5 to 15 percentage points – for all individuals and entities except Singapore citizens and PRs buying their first residential property. The TDSR and LTV limits for HDB loans were also tightened.
In the months that followed, a chill descended on the property market as buyers backed away, developers pulled back new launches, and land sales went quiet. Momentum has since returned, with buyers flocking to new project launches despite record pricing levels, foreign buyers returning in volume, while HDB resale prices continue creeping upwards. The latest tightening measures are expected to deal a fresh blow to the market as buyers and developers alike take time to digest the impact.