Responding to feedback, MAS drops loan-to-value limit for businesses

In response to feedback from the business community, the Monetary Authority of Singapore has decided to do away with a regulatory loan-to-value (LTV) limit for non-individuals seeking to borrow money secured on a residential property.

This means businesses – starting from yesterday – will not be subjected to a 50 per cent limit for a loan obtained from the equity value of their existing property mortgage.

LTV limits for individuals seeking financing on an existing residential mortgage, however, still stand at 60 per cent, i.e. he or she will have to put down at least 40 per cent deposit on a second home or other purchases.

Such tighter financing rules – typically called mortgage equity financing or mortgage withdrawal loans – were introduced earlier in January as part of the Government’s overall cooling measures for the property market.

But according to the MAS response issued earlier this month following public consultation, it noted respondents’ concerns that a 50 per cent loan-to-value on non-individuals – which may include corporations and trusts – may limit credit supply to small and medium enterprises (SMEs) and increase their borrowing costs.

This is especially when SMEs may use the residential properties of their owners or shareholders as collateral to obtain loans for working capital and other commercial activities.

Still, it expects banks and financial institutions to continue to “exercise prudent credit assessment” and apply appropriate LTV limits based on the credit profile of the businesses.

MAS also warned banks to look out for individuals who are looking to circumvent LTV limits through the relaxation on businesses.

“Where ‘shell companies’ are set up by individuals solely to obtain a mortgage withdrawal loan, financial institutions should … apply the LTV limits to such ‘shell companies’ as if they were individuals,” said the regulator.

Source : Today – 29 Jul 2011

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