By now most would have heard of the news announced by MAS on Thursday 1 Sep 2016 regarding changes on TDSR exemption. Some mistaken that TDSR (Total Debt Servicing Ratio), as part of the cooling measures introducd by the Singapore government to help contain an overheated property market in recent years, has been lifted. That is not true. The authorities have repeatedly stated that TDSR is structural in nature and will stay on even when all the other cooling measures like ABSD (Additional Buyer’s Stamp Duty), SSD (Seller’s Stamp Duty) and reduced LTV (Loan-to-value) may be lifted progressively over time.
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What Is The Change All About?
There are essentially two key changes. First MAS has now removed the requirement for property purchase date to be before the TDSR introduction date of 29 Jun 2013 for one to enjoy exemption from TDSR currently set at 60%, be it for owner-occupied or investment property.
Second, and more significantly, for investment properties MAS has now removed the “ticking time bomb” which we have been forewarning in this blog – the deadline of 30 Jun 2017 will be abolished. There is no more deadline. That comes as a huge relief for those servicing mortgages for a few properties and already over the limit of 60% when TDSR came into effect. Previously this group of investors was given a grace period of 4 years to bring their TDSR to within the threshold of 60%. During this time they will be allowed to refinance their mortgage subject to the purchase date before 29 Jun 2013 and that they agree on a Debt Reduction Plan with the new bank. After 30 Jun 2017, they will strictly not be allowed to refinance unless they comply with TDSR which means that some of these investors may be forced to sell off their properties, should interest head north.
With the deadline removed, investors are now free to refinance their existing mortgages whether they bought their properties before or after 29 Jun 2013, and even if their TDSR is over the limit of 60%, as long as they agree to pay down a fixed percentage of their outstanding loan set formally by MAS at no less than 3% of the outstanding loan over a 3-year period. However most people missed one important point which we will explain more below –borrowers will still need to pass the credit assessment of the new bank they apply to for refinancing.
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What Is The Significance?
Going more indepth as usual in this blog, we think the latest move spells some worrying signs ahead.
In its press release, MAS disclosed that about 2.5% of the mortgages out there are over the TDSR limit. It is this 2.5%, set to rise as Singapore faces significant economic headwinds, that is behind why MAS decides to cut investors some slack. It shows even at current low interest rates, more people with multiple properties are finding it difficult to refinance their home loans and are seeking help from the authorities. Bank mortgagee sales are rising steadily. Some might have already lost their jobs and are unable to keep up with their debt olibgations while struggling to find tenants in a rental glut. All eyes will be on interest rate movements going into 2017, and should that pick up significantly the group of investors overstretched will face more difficulties even with this latest reprieve, as refinancing can still mean unaffordable repayments for some. For this group it is important to go with a loan peg that is either fixed or has the least propensity to rise along with market.
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Still the authorities pre-emptive move is laudable. It removes the urgency of a deadline for investors who must sell their properties soon if interest stays up. In fact as SIBOR has come off in rcent months, investors should make use of the current interest rate lull to make their move. Speak to our consultants who can give you the lowdowns on which bank has the best refinancing deal for your situation.
We see less impact to the segment of owner-occupiers many who were already exempted from TDSR. However by removing the purchase date requirement, again MAS recognizes there may be some who met TDSR when they first bought their properties post 29 Jun 2013 but who may now be over the limit with changes in their household income. This group can now heave a sign of relief and move quickly to lock down current low rates for refinancing.
How Will The Lenders Respond?
A lot still depends on how the banks choose to implement the TDSR exemptions. Over the past 2 years we have seen lenders gone more stringent on TDSR exemption – for example even when MAS allows for homeowners over the TDSR limit of 60% to refinance their loan for owner-occupied homes, we know the 3 local banks have internal guidelines that disallow the exemption if TDSR exceeds by too much like over 80%. This is part of the bank’s credit policy. So having the TDSR exemptions now relaxed is one thing, how much leeway the bank will extend to someone who is deemed highly over-leveraged in his or her debt obligations is another. And this is the part that is missed by most in MAS’s announcement – all borrowers will still need to pass the financial institution’s credit assessment. Speak to our consultants if you face such a situation as we may help to navigate this tricky area better than going on your own.
Bottomline, it is still best to exercise prudence and bring down one’s TDSR progressively over time. And planning ahead in terms of having the right documentations certainly help in a big way from our experience assisting our clients. Speak to us today.
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