MAS imposes cap on housing loan tenures
Singapore regulators signaled their concerns over still rising home prices yesterday, announcing fresh mortgage curbs to cap upward price pressures caused by low interest rates and fast credit growth.
The Monetary Authority of Singapore (MAS) said it will set
an absolute limit of 35 years on the tenure of all residential property loans -
both new loans and refinancings. It will also lower loan-to-value (LTV) ratios
for new loans with a tenure of more than 30 years. The new rules will apply to
both private homes and HDB flats and will take effect today.
"Monetary conditions worldwide are far from
normal," said Deputy Prime Minister Tharman Shanmugaratnam, noting that
the latest round of quantitative easing (QE3) in the United States and low
interest rates have made credit easy, though this will eventually change.
"We are taking this step now to require more prudent
lending, and will continue to watch the property market carefully," said
Mr Tharman, who is also Finance Minister and MAS chairman. "We will do what
it takes to cool the market, and avoid a bubble that will eventually hurt
borrowers and destabilise our financial system."
The new rules - Singapore's sixth round of cooling measures
- look set to affect not just home buyers and existing owners looking to
refinance their mortgages, but also property developers and banks.
According to the central bank, over 45 per cent of new home
loans have tenures exceeding 30 years.
MAS will cap the tenure of all new residential property
loans at 35 years
For refinancings, the tenure of the refinancing facility and
the number of years since the first home loan for that property was disbursed
cannot add up to more than 35 years.
Also, MAS will lower the LTV ratio for new home loans to
individual borrowers if the tenure exceeds 30 years, or the loan period extends
beyond the retirement age of 65 years.
The LTV will be 60 per cent for a borrower with no
outstanding residential property loan, compared with 80 per cent previously,
and 40 per cent for a borrower with one or more outstanding home loans,
compared with 60 per cent before the new rules.
For non-individual borrowers, the LTV ratio for home loans
will be lowered to 40 per cent from 50 per cent.
The MAS move comes after the Hong Kong Monetary Authority
announced a 30-year limit on the maximum term of all new mortgages last month,
following the launch of QE3. With the Federal Reserve looking to pump US$40
billion into the US economy each month until sustained jobs growth kicks in,
worries about hot money inflows into Asia and asset price inflation have again
emerged.
Stretched tenures
Previous rounds of cooling measures had a moderating effect
on home prices in Singapore, and a significant supply of housing will also come
onstream in the next two years, MAS noted. "However, prices in both the
HDB resale market and private residential property have continued to rise in Q2
and Q3 of 2012."
According to official flash estimates on Monday, HDB resale
prices rose 2 per cent in Q3 from Q2, while private home prices gained 0.5 per
cent over the same period. Separately, the SRX Residential Property Flash
Report yesterday showed resale prices of non-landed private homes rising 3.2
per cent in Q3.
Low interest rates globally and locally are likely to
persist and will continue to spur residential property demand, pushing up
prices beyond sustainable levels, MAS warned, stressing that "the eventual
correction could be painful to borrowers and destabilise the economy".
Meanwhile, financial institutions have stretched the
durations of home loans, and long tenure loans pose risks to both lenders and
borrowers, the central bank said. The average tenure for new residential
property loans climbed to 29 from 25 years over the last three years, it
revealed. Also, more than 45 per cent of new home loans granted by financial
institutions have tenures exceeding 30 years.
Lower initial monthly repayments from long loan tenures and
low interest rates may cause borrowers to overestimate their loan servicing
ability and take a bigger loan than they can afford, MAS said. In fact, long
tenure loans create a larger debt repayment burden as interest accumulates over
a longer period.
"When interest rates eventually rise, borrowers who
have overextended themselves will have difficulties repaying their loans,"
MAS said. "If property prices fall, financial institutions may be caught
holding the bad loans."
Banks which offer home loans with a tenure of over 35 years
will feel the impact of the new rules almost immediately. DBS and OCBC are
among those providing mortgages stretching up to 40 years.
"We will reduce our existing maximum home loan tenure
of 40 years to 35 years, with immediate effect," said OCBC group corporate
communications head Koh Ching Ching.
A DBS spokeswoman said that most of the bank's home loans
have a tenure of under 35 years. "It will take some time to ascertain the
impact of the new measures while homebuyers assess the market."
Resale impact
United Overseas Bank (UOB), which introduced 50-year housing
loans in July, did not respond to media queries. Some market watchers then had
questioned if the product would cause borrowers to overextend themselves, and
National Development Minister Khaw Boon Wan subsequently called it a
"gimmick".
Maybank said its maximum loan tenure for home loans is 35 years.
"With an ageing population and couples marrying and setting up home at a
later age, the new rules will have impact on these segments," said Alan
Yet, head of lending (consumer banking) for Singapore.
The jury is out on how the new rules will affect the
residential property market. The Real Estate Developers' Association of
Singapore (Redas) does not expect a significant impact. "Based on past
experience, not many buyers take long tenure loans," it said. Just last
week, Redas said the property sector does not need more cooling measures - at
least not before a thorough review of the impact of earlier policies.
Source: Business Times – 6 October 2012