New regulations unlikely to affect property market

The Monetary Authority of Singapore’s (MAS) proposed new regulations to tighten mortgage equity withdrawal loans (MWL) should have little impact on the property market if they are eventually introduced.

Market players, who include mortgage loans brokers, said this is because most buyers who aim to cash out on the value of their homes are not the average home owners or property investors.

Instead, they – usually high-net-worth individuals -account for a small portion of all property buyers. They are also said to be financially savvy and typically use the extra liquidity to re-invest in other instruments, market experts said.

Loans brokers MediaCorp spoke to said financial institutions are also unlikely to dispense MWL for a second or subsequent property, in an effort to discourage speculating on the property market.

While the Government has further reduced loan-to-value (LTV) ratios for mortgage loans to cool the property market, the MAS proposed that the LTV ratios of mortgage equity withdrawal loans be reduced as well.

MAS’ consultation paper, which was put out on Jan 13, proposes that MWL be reduced to an LTV of 80 percent for individuals with no outstanding mortgages and 60 per cent for individuals with more than one outstanding mortgage.

For non-individuals like corporations, they are subject to 50 per cent LTV if they have more than one outstanding mortgage.

The consultation paper is currently open for feedback until Feb 14.

MWL allows homeowners to take out loans using their property as collateral. The amount of MWL taken out depends on the current valuation of the property.

For example, a property owner has a house worth $1 million and he has an outstanding loan of $200,000. This means the maximum amount he can receive from an MWL is $400,000.

This adds up to $600,000 in total loans, which translates to 60 percent of the $1 million valuation.

And in a property upswing, homeowners can cash out more from a higher property valuation. But such practices are not widespread and hence should not have a serious impact on the property market.

“What will really dampen sentiment are the new cooling measures on conventional housing loans, which are used largely by home buyers, instead of mortgage equity financing loans,” said Mr Dennis Ng, founder of

“MAS wants to ensure that all measures are in line for both types of loans to curb speculation,” he said.

Such loans have been around before the property measures kicked in, said Mr Ku Swee Yong, chief executive of International Property Advisor.

“Financial institutions may tend to benefit from such loans because it is backed by an asset, hence it is lower risk. The home buyer who has paid off the property entirely has also demonstrated to the bank that he is unlikely to default on his payments.” he added.

But loan brokerage firms may see less business if this proposed scheme is introduced, said market players.

“With interest rates looking flat and with the current curbs, business will be still for some time,” said Mr Bryan Ong, founder of property loans brokerage BC Group.

Source : Today – 31 Jan 2011

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