The new policy by MAS, which took effect on 29 Jun 2013, imposes a new lending framework on banks when granting property loans, thereby standardizing the broad lending guidelines among all banks. 

The new measure applies to all property loans granted to individuals, sole-proprietorship, investment holding companies set by individuals solely to buy properties, whether for purchase or refinancing. The properties cover both residential and non-residential properties located in Singapore and overseas.

The new measure includes:

(a) Total Debt Service Ratio not more than 60%

A person's total monthly debt repayment cannot exceed 60% of the gross monthly income

                        Monthly Total Debt Obligations                              _X  60%

 Gross Monthly Income (excl CPF Contribution by Employer)

(b) The monthly debt repayment covers ALL loans from the HDB Board, financial institutions and money lenders in the borrower's name or jointly with another borrower. the new loan, other existing property loans, car loan, renovation loan, personal/credit card loans, etc. 

Financial assets, like bank deposit, can be considered as part of the income provided the deposit is pledged with the bank for 4 years. 

Note that HDB borrowers are required to meet the total monthly debt repayment of not more than 30% of gross monthly income, which includes ALL debt obligation secured by properties. 

(c) The banks will take 70% of the value of the variable income as part of the monthly gross income. Variable income includes bonus, incentives, commission, allowance and rental income. 

(d) For the calculation of the monthly payment for the new loan, banks are required to use:

(i) the medium term rate of 3.5% on housing loan and 4.5% on non-residential property loan or prevailing rate, whichever is higher. 

(ii) the actual loan tenor that the borrower is applying. For joint borrowers, the loan tenor is determined based on the weighted average age of the borrower, weighted based on their gross monthly income. 

(e) Banks no longer can consider co-borrower or guarantor to support the income. All borrowers must be mortgagors.

Who will be affected?

• Those with a higher proportion of variable income as part of their overall income, especially sales agents, self employed, landlords, insurance and property agents, etc. 
• Those with multiple loans, especially property loans, and those having outstanding under a few credit cards
• Joint borrowers, who are older but earning more income, will be granted shorter loan tenor

Exceptions

For purchase of HDB flats/ECs, banks may exclude the monthly instalment of existing residential property for determining the total monthly debt obligations, provided the borrower :-

• has only one property which he owns and is in the process of selling;
• does not have any other property loan;
• does not own any other property, including jointly own with others; and
• borrower does not have any other outstanding property loan.

For refinancing of residential properties, banks may consider granting in excess of total debt servicing calculation of 60%, provided :- 

• the residential property is the only property that the borrower owns;
• the borrower is one of the occupiers of the residential property; and 
• the borrower does not have any other outstanding property loans, including those in joint names with others.

Additional documents required

With this, additional documents, like the statements pertaining to other debt obligations of the borrowers, would be required to be submitted to the banks for verification. Banks may also request for Credit card/Personal loan statements even though the credit limits are not used.

What can borrowers expect?

Firstly, borrowers need to be prepared to complete more paper work. Given that there are more due diligence required of banks, the processing time for loan application are longer now. To avoid further delay in loan processing, it may be wise to start keeping the latest monthly loan statements (whether the credit limit is utilised) as these would be required by banks in all loan applications now. Also, home owners, who wish to buy properties, but derive variable income and have multiple loan obligations, should also be prepared to lower down their expectation on the loan quantum.

For more details on the new policies, please refer to the following links:

MAS Announcement on Debt Servicing Framework for Property Loans

MAS Notice 645 Computation of Total Debt Servicing Ratio for Property Loans

MAS Guidelines on the Applications of Total Debt Servicing Ratio for Property Loans