The Monetary Authority of Singapore (MAS) has set new home loan rules which discourage lenders from making property loans that result in individual borrowers using more than 60 per cent of their monthly incomes to service debt.
The central bank said in a statement on Friday that the new rules will take effect from Saturday.
“The TDSR (total debt servicing ratio) will apply to loans for the purchase of all types of property, loans secured on property, and the re-financing of all such loans,” it said.
MAS said the rules will help strengthen credit underwriting practices of financial institutions and encourage financial prudence among borrowers.
MAS will also refine rules related to the application of the existing Loan-to Value (LTV) limits on housing loans.
The bank said these refinements seek to ensure the effectiveness of the loan limits that were put in place to cool investment demand in the housing market.
In particular, they aim to prevent home buyers from circumventing the tighter loan limits on second and subsequent housing loans.
When working out loans to be granted to home buyers, banks will have to consider the monthly repayment for the property loan that the borrower is applying for, plus all his other outstanding debt obligations.
Banks will also have to apply a specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for.
The financial institutions will also have to discount at least 30 per cent of the borrower’s variable income, such as bonuses, and rental income.
MAS said its inspection of banks showed uneven practices with respect to the application of debt servicing ratios and highlighted areas for improvement in credit underwriting practices.
Source : Channel NewsAsia – 28 June 2013