The Monetary Authority of Singapore (MAS) announced on 1 September 2016 on the changes made to the current housing rules and measures. Due to the current Total Debt Servicing Ratio (TDSR) threshold of 60 percent, some borrowers have commented that they are unable to refinance their existing property loans. Accordingly, MAS has fine-tuned the refinancing rules under TDSR framework to allow borrowers more flexibility in managing their debt commitments. However, MAS has indicated that this is not an indication of a property market cooling measure and the TDSR framework and threshold will continue to apply to new property loan applications.
According to the MAS rules, the TDSR must not exceed 60 percent. So now, what exactly is TDSR, you ask? TDSR in a more straightforward term, is how much of your monthly gross income you use to service your debts. Such debts include car loan, renovation loan, credit card loans, loans from banks, licensed moneylenders, etc etc. It also covers loans made jointly with another borrower.
Investment Properties
With immediate effect, for all investment properties regardless of when it is purchased (whether it is before or after the TDSR is introduced), a borrower could refinance his property loan above the 60 percent threshold if he meets two conditions: (1) commits to a debt reduction plan with his financial institute to repay at least 3 percent of the outstanding balance over a period of not more than 3 years; and (2) fulfils his financial institution’s credit assessment. Prior to this broadened concession, a borrower with investment properties may only refinance above the 60 percent threshold provided he commits to a debt reduction plan.
Owner-occupied Properties
MAS has also fine-tuned a second rule. Exemptions for refinancing above the 60 percent TDSR threshold will apply to all owner-occupied residential properties. This applies to all owner-occupied residential properties bought before or after the introduction of TDSR. The TDSR will continue to apply to new property loans.
Quoting Mr. Ong Chong Tee, MAS Deputy Managing Director, “The TDSR is a structural measure to encourage prudent borrowing by households. The adjustments announced today will help borrowers to refinance their existing property loans at lower interest rates and better manage their debt obligations over time. They do not apply to loans for new property purchases and are not an easing of the property cooling measures.”
Readers can obtain this news update at the MAS website http://www.mas.gov.sg/News-and-Publications/Media-Releases/2016/TDSR-Rules-on-Refinancing-Fine-Tuned.aspx