Deciphering MAS Broadening of Exemption from TDSR Threshold for Refinancing
Since the 60% TDSR threshold took effect on 29 June 2013, not only property buyers are affected, borrowers with existing housing loans are facing challenges refinancing their loans. MAS’s announcement on 10 February 2014 on the broadening of exemption from TDSR threshold has provided some relief to these borrowers. The news has brought about a surge in the number of enquiries related to refinancing.
Here, we decipher the latest MAS announcement, which comes in two parts:
For Owner-Occupied Properties:
(1) The TDSR threshold of 60% can be exempted for refinancing of owner-occupied property loans, provided the properties were bought before the TDSR implementation date of 29 June 2013.
MAS allows TDSR to exceed 60% for refinancing cases involving owner-occupied properties which were bought before 29 June 2013. This exemption applies even when the borrowers own other properties or have other outstanding property loans.
If the properties to be refinanced comprise outstanding housing loan as well as equity loan, the overall loan must meet the 60% TDSR threshold.
(2) MSR will not apply to refinancing of HDB flats and ECs that are owner-occupied and purchased before the implementation dates of 12 January 2013 for HDB flats and 10 December 2013 for ECs.
Although MSR will not apply for owner occupied HDB flat and ECs, TDSR calculation will still be applicable, but with slightly more leeway as TDSR of more than 60% can be considered by banks.
(3) Concessions are also given on the loan tenor whereby owners are allowed to maintain the remaining loan tenors for HDB flat bought before 28 Aug 2013 and for ECs and private residential properties bought before 6 October 2012 when refinancing.
We understand that not all banks are adopting this concession especially so for loans that were previously extended beyond 35 years. Some banks may continue with the current guidelines of keeping the loan tenor within 35 years, capped at age 70 or 75, depending on banks.
For Investment Properties
(4) MAS will allow a transition period until 30 June 2017, during which a borrower may refinance his investment property loans above the 60% threshold, provided he meets the following conditions:
- Property is bought before the TDSR implementation date, 29 June 2013,
- Borrower commits to a debt reduction plan with the financial institution at the point of refinancing,
- Borrower fulfils the banks’ credit assessments.
MAS has emphasized that the transition period till June 2017 is to allow investors to "right-size" their debt obligation. What we see as necessary is that investors should assess their own TDSR and take steps to reduce the debt servicing ratio, as this will help them go a long way in their investment.
Refinancing could be one possible way to lower the debt servicing for those who own multiple property loans by first refinancing the owner occupied property loan to lower interest rates and at maximum loan tenor.
For property investors who do not meet the 60% threshold when applying for refinancing, their applications can be considered by banks provided they meet the 3 conditions stated by MAS.
For more details about MAS announcement, please refer to: MAS website