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TDSR tweaked for refinancing of existing property housing loans

News from Today, 2 Sept 2016

SINGAPORE — The Monetary Authority of Singapore (MAS) has refined the Total Debt Servicing Ratio (TDSR) framework to allow all homeowners to be exempted from meeting the 60 per cent threshold when refinancing mortgages of the home they reside in.

In a statement yesterday, the central bank said the move was taken in response to feedback from some borrowers who are unable to refinance their existing property loans at lower interest rates due to the TDSR framework, which requires financial institutions to ensure loans they approve do not push borrowers’ debt servicing ratio above 60 per cent of their gross monthly income.

Previously, only loans of owner- occupied homes taken before the introduction of TDSR on June 29, 2013 were allowed to be refinanced above the framework’s threshold.

But from yesterday, the same concession has been extended to homes bought after the implementation as well, the MAS said. It emphasized that the move is not an easing of property cooling measures and the framework continues to apply to new property loans.

“The TDSR is a structural meas- ure to encourage prudent borrowing by households. The adjustments will help borrowers to re nance their ex- isting property loans at lower interest rates and better manage their debt obligation over time,” said Mr Ong Chong Tee, MAS deputy managing director.

The latest tweaks also allow investment property loans to be re nanced above the TDSR threshold regardless of when the property is purchased. However, borrowers have to commit to a debt reduction plan to repay at least 3 per cent of outstanding balance over a period of not more than three years, as well as fulfil their financial institutions’ credit assessment. The Mortgage Servicing Ratio limit will also not be applied to refinancing of housing loans for Housing and Development Board flats and executive condominiums that are owner-occupied.

Analysts said the central bank’s announcement yesterday was timely given weaknesses in the economic environment, which could affect homeowners’ ability to repay their loans.

“The move to tweak TDSR for refinancing can be read as a reiteration that the Government is not in favour of a hardlanding in the property market,” said Ms Christine Li, Cushman & Wakefield’s research director, adding that the tweaks help to ensure market stability by preventing more cases of forced selling by owners who could not refinance under the old TDSR rules.

Mr Ku Swee Yong, chief executive of Century 21, said: “I think (the MAS) is responding to the fact that there are more and more distressed cases on the ground. Those who bought in 2011-2012 when the market was reaching its peak, they are now collecting their keys and may not find the rental income to support (their loan repayments). Today, when interest rates are still low, refinancing may relieve their burden.”

Currently, about 2.5 per cent of new home loans are above the TDSR threshold. The MAS had said when it introduced TDSR that property loans in excess of the 60 per cent threshold should be granted only on an exceptional basis.

Ms Tok Geok Peng, DBS Bank’s executive director of secured lending, consumer banking group (Singa- pore), said: “While we rarely see our customers’ refinancing requests being rejected due to TDSR requirements, this move now makes it more efficient for banks to process refinancing by existing borrowers.”

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