Singapore introduces new property cooling measures: Maximum loan quantum limits tightened, loan-to-value limit lowered

SINGAPORE: The Government on Thursday (Sep 29) introduced a slew of new property cooling measures aimed at moderating demand amid rising market interest rates.

The measures include tightening maximum loan quantum limits and introducing a 15-month wait-out period for private home owners buying Housing Board resale flats.

The loan-to-value (LTV) limit for HDB loans will also be lowered from 85 per cent to 80 per cent.

This was announced in a joint press release by HDB, the Monetary Authority of Singapore (MAS) and the Ministry of National Development (MND) on Thursday slightly after 11.40pm.

The agencies noted that market interest rates have "risen significantly" and are likely to increase further in the future, affecting borrowing costs for home purchases.

"To ensure prudent borrowing and avoid future difficulties in servicing home loans, the Government will tighten the maximum loan quantum limits for housing loans," they said.

Under this, higher interest rates will be assumed when assessing borrowers' repayment ability.

This will be done via two measures: Raising the medium-term interest rate floor used to compute the total debt servicing ratio and the mortgage servicing ratio by 0.5 per cent, as well as introducing an interest rate floor of 3 per cent for computing the eligible loan amount for those granted by HDB.

The increased medium-term interest rate floor will apply to loans used to buy properties where the option to purchase is granted on or after Sep 30. If there is no option to purchase, it will apply when the date of sale and purchase agreement is on or after that date.

The actual interest rates charged for mortgages will continue to be determined by the private financial institutions, they said.

For loans granted by HDB, the new interest rate floor will apply to fresh applications for an HDB loan eligibility letter received on or after midnight on Sep 30.

With the new interest rate floor, the eligible amount of HDB's concessionary housing loan will be computed using 3 per cent per annum or 0.1 percentage point above the prevailing CPF Ordinary Account interest rate, whichever is higher.

However, there will be no impact to existing applications received by HDB before this time. It will also not affect the actual HDB concessionary interest rate, which will remain at 2.6 per cent per annum.

Meanwhile, the loan-to-value limit for HDB loans will be lowered from 85 per cent to 80 per cent.

"The lower LTV limit will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after Sep 30, 2022," the agencies said.

This reduces the maximum amount potential home owners can borrow from HDB. But the revised limit will not apply to loans granted by financial institutions, which will remain at 75 per cent.

The agencies said they do not expect this move to affect first-time and lower-income flat buyers significantly, as these potential home owners still receive housing grants of up to $80,000 when buying a subsidised flat directly from HDB, or up to $160,000 when buying a resale flat.

"They can also tap on their CPF savings to pay for the flat purchase, thereby reducing the loan amount they may need to take," the agencies added.

INCREASE WAIT-OUT PERIOD 

The authorities also noted that the HDB Resale Price Index has increased by more than 5 per cent as at the end of the second quarter of 2022, since an earlier package of cooling measures was introduced in December last year.

Given the "clear upward momentum in HDB resale prices", to moderate demand and ensure that resale flats remain affordable, the Government will impose a 15-month wait-out period for private home owners before they can purchase a non-subsidised HDB resale flat. This will kick in after they have sold their property.

The new rule will also apply to those who sold their private property prior to submitting an application to buy a resale flat.

Such property owners were previously allowed to buy a HDB resale flat on the open market, as long as they sell their private properties within six months of the purchase.

This wait-out period will not apply to seniors aged 55 and above who are moving from their private property to a four-room or smaller resale flat, the agencies said.

The wait-out period for private home owners who are first-timers and wish to apply for the Central Provident Fund (CPF) Housing Grant and Enhanced CPF Housing Grant for their resale flat purchase also remains unchanged at 30 months.

"It is a temporary measure which will be reviewed in future depending on overall market conditions and housing demand," they added.

"The Government remains committed to keep public housing inclusive, affordable and accessible to Singaporeans. We will continue to monitor the property market and adjust our policies to ensure that they remain relevant.

"We urge households to exercise prudence before taking up any new loans, and be sure of their debt-servicing ability before making long-term financial commitments."

In December, the Government announced a set of measures to cool the private residential and HDB resale markets.

This included raising Additional Buyer’s Stamp Duty (ABSD) rates, tightening the total debt servicing ratio threshold and lowering the LTV limit for loans.

ABSD rates for Singapore citizens and permanent residents purchasing their first residential property remained unchanged at 0 per cent and 5 per cent respectively. However, it was increased for those buying a second or a third and subsequent residential property.

The Government also tightened the total debt servicing ratio threshold from 60 per cent to 55 per cent, which means new mortgages cannot cause borrowers' total monthly loan repayments to exceed 55 per cent of their monthly income.

It had also earlier cut the LTV limit for HDB loans, from 90 per cent to 85 per cent.