By Mr. Propwise

On 1 September 2016 the Monetary of Authority of Singapore (MAS) announced a fine-tuning of the refinancing rules under the Total Debt Servicing Ratio (TDSR) framework, in order to allow borrowers who are unable to refinance their existing property loans due to the application of the TDSR framework to do so. The MAS says it is making the changes in response to feedback from borrowers who were previously unable to refinance their existing property loans due to this.

What changed?

For owner-occupied residential properties, borrowers may now be exempted from the TDSR framework when they refinance their housing loan even if they bought it after the introduction of the TDSR.

For investment properties (i.e. second property and above), borrowers can refinance above the TDSR threshold of 60 per cent, regardless of when the property was purchased, if they meet two conditions:

  1. They commit to a debt reduction plan to repay at least 3 per cent of the outstanding balance over a period of not more than 3 years; and
  2. They fulfil their financial institution’s credit assessment.

If they don’t meet the above two conditions, the TDSR threshold will still apply.

Only a small group of borrowers will be affected by this fine-tuning – it was reported that only about 2.5 per cent of home loans made after the TDSR rules were implemented were currently above the 60 per cent threshold.

So is this a loosening?

Not officially.

In fact, the MAS is worried enough that people (read: property agents and developers) will see this action as a lifting of the clampdown on the property market that it included a line in their announcement to emphasize that these tweaks “do not represent a relaxation of property market cooling measures.”

They further caution borrowers to “exercise prudence and reduce their debt burdens, as the current low interest rate environment will not persist indefinitely. Borrowers will face higher mortgage repayments when interest rates rise.”

But these tweaks will take some pressure off the property market by preventing any fire sales of properties by marginal borrowers who might have been caught under the previous rules. As Ku Swee Yong, CEO of Century 21 said when interviewed by Today: “I think (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 is 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.”

This fine-tuning should not significantly affect the demand for property, so I don’t believe we’ll see prices heading up because of it.

Dealing with a thirst for yield and borrower complacency

The extended period of low interest rates has led to a thirst for any assets with a yield and complacency among borrowers that the current low interest rates will persist permanently. If interest rates do rise significantly, this might come as a shock and put marginal borrowers at risk of defaulting on their loans.

With property prices having corrected less than 10% from the 2013 peak, I believe the government still wants to see property prices trend further downwards before lifting the cooling measures.

And they might get to see that with the help of weak economic growth, increased job losses (as I write this I’ve just seen the headline of global bank Barclays Plc cutting about 100 IT jobs in Singapore), and a possible Federal Reserve interest rate hike later this year.

By Mr. Propwise, the founder of Singapore property blog, which aims to help people make better real estate buying, selling, renting and investing decisions.

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