[SINGAPORE] The Monetary Authority of Singapore says it will keep an eye on "credit practices of FIs (financial institutions) and data trends", and assess if last week's tenure reduction for bank loans for HDB flats should be extended to private home loans.
On Aug 27, MAS trimmed the maximum tenure of new home loans for the purchase of HDB flats and refinancing of such facilities granted by FIs, from 35 years to 30 years.
At the same time, tighter loan-to-value (LTV) limits which previously applied to new loans with tenures exceeding 30 years now apply to loans of more than 25 years.
When asked if MAS plans to extend these to private housing mortgages, its spokesman said that it will "continue to monitor the credit practices of FIs and data trends, and assess if tenure reduction should be extended to loans for the purchase of private properties".
Market watchers reckon a key data trend MAS would be tracking is whether loan tenures for private homes have been creeping up towards the maximum 35 years allowed currently. Such a trend would raise the impetus for MAS to extend the loan tenure cut to the private housing sector.
However, BT understands the reverse situation has surfaced as borrowers would rather seek shorter-tenure loans than suffer a significantly lower LTV limit - by 20 percentage points - for new private home loans exceeding 30 years or where the loan period extends beyond the borrower's retirement age of 65 years.
A banking industry source estimates that the January property cooling measures led to a 20-30 per cent drop in the number of private home loans approved by banks between the first and second quarters of this year. "The introduction of the Total Debt Servicing Ratio (TDSR) in late-June has led to a further decline.
"We've also noticed that developers have been launching new private residential projects at prices lower than what they had earlier aimed for, before TDSR was announced. So you may say that the cooling measures/TDSR have been effective," added the source.
Ong Choon Fah, chief operating officer, South-east Asia, at property consulting group DTZ, notes that property market activity has "already dropped a lot since TDSR was implemented".
"And with the ongoing flow of funds out of the region, markets such as equities and currencies are very volatile. The authorities will want to ensure that we are robust enough to ride through this. They'll watch very carefully before implementing any further measures affecting the property market," she added.
On Aug 27, the government announced that new loans granted by FIs for the purchase of HDB flats with tenures exceeding 25 years or where the loan period extends beyond the borrower's 65-year retirement age are subject to tighter LTV limits.
Where a borrower has no outstanding housing loan, the applicable LTV limit will be 60 per cent, instead of 80 per cent.
Where the borrower has one outstanding housing loan, the LTV limit will be 30 per cent, instead of 50 per cent. And if the borrower has two or more outstanding housing loans, the LTV limit will be 20 per cent, instead of 40 per cent.
At present, these tighter LTV limits also apply to new loans for the purchase of private homes but only where the loan tenure exceeds 30 years or stretches past the borrower's retirement age. Currently the maximum tenure allowed for private home loans (both new loans and refinancing cases) is 35 years.
BT understands that private home buyers have been seeking shorter-tenure loans since last October, when the authorities introduced the 35-year maximum loan tenure for all residential property loans and lowered the LTV ratio on new housing loans if their tenure exceeds 30 years or the loan period stretches past the borrower's 65-year retirement age.
"Anecdotally, customers are maximising LTV instead of maximising tenure. A borrower that does not have any outstanding home mortgage qualifies for up to 80 per cent LTV for a private home purchase if the loan tenure is up to 30 years, but a lower 60 per cent LTV for a loan of more than 30 years. To a borrower, this 20-point difference in LTV is more significant than being able to enjoy additional years in the duration of the private home loan," noted a financial industry player.
The trend of borrowers preferring shorter loan tenures for private home purchases is said to have gained momentum following the January cooling package, which further tightened LTV limits on individual borrowers with at least one outstanding home loan. At the same time, the minimum cash downpayment for this group was raised from 10 per cent to 25 per cent.
Source: Business Times