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MAS kneads out refinancing knots posed by TDSR

Concessions broadened so borrowers of loans for homes and investment properties can get refinancing even when TDSR limit is breached

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With 5-10 per cent of households here estimated to be highly leveraged, the Monetary Authority of Singapore (MAS) on Thursday refined rules behind its debt-to-income threshold - better known as the total debt servicing ratio (TDSR) - so that such borrowers will have more flexibility in refinancing their property loans.


WITH 5-10 per cent of households here estimated to be highly leveraged, the Monetary Authority of Singapore (MAS) on Thursday refined rules behind its debt-to-income threshold - better known as the total debt servicing ratio (TDSR) - so that such borrowers will have more flexibility in refinancing their property loans.

This extends from exemptions made in 2014 that were given to those who had bought properties before TDSR came into force. Consultants said the new rules will give little boost to demand in the property market, but create more room for refinancing by overleveraged borrowers.

In its press statement, MAS said: "The refinements being introduced for refinancing of loans will enable borrowers to better manage their existing debts. They do not represent a relaxation of property market cooling measures."

Under TDSR, a borrower is limited to making total monthly debt repayments of no more than 60 per cent of his or her gross monthly income. This has been in place for more than three years.

With immediate effect, loans for all investment properties can now be refinanced above the debt-to-income threshold of 60 per cent as long as the borrower commits to repay at least 3 per cent of the outstanding balance over a maximum of three years, and meets the bank's credit assessment. This translates roughly to a year's worth of mortgage payments.

Prior to this, only borrowers with properties bought for investment before the introduction of TDSR could refinance above the TDSR threshold of 60 per cent if they committed to debt reduction plans when refinancing their loans. This was part of the exemption offered in 2014. But then, MAS did not prescribe a repayment rate, and said the exemption was for a transition period until the end of June 2017.

To be clear here, the tweaked rule will apply to refinancing loans for all investment properties - that is, any property bought before or after June 29, 2013, the fateful day TDSR came into effect.

In the years after that, banks typically could approve housing loan applications only from borrowers who met the debt-income ratio of 60 per cent. But as TDSR is a ratio based on income, an individual who suffered a loss in income after getting his or her housing loan within TDSR limits could have his or her debt ratio exceed the threshold later.

MAS has thus tweaked a second rule. Loans for all owner-occupied residential properties can now be refinanced even when the borrower's debt limit has breached 60 per cent of his or her income. This extends from the exemption made in 2014, when MAS allowed borrowers with owner-occupied properties bought before TDSR was introduced to refinance even if they busted the debt-to-income ratio.

TDSR will continue to apply for new loans, with MAS taking pains to stress that cooling measures are not being relaxed. This adjustment, MAS said, came after market feedback that some borrowers have been unable to refinance their existing property loans due to the debt limit set by the regulator, though it did not specify how many refinancing attempts have been thwarted by TDSR limits.

The debt-to-income ratio was meant to curb speculation in properties in this extraordinary (albeit prolonged) period of low interest rates.

In a statement, MAS deputy managing director Ong Chong Tee said the adjustments will help borrowers to refinance their existing property loans at lower interest rates and to better manage their debt obligations over time.

DBS director of secured lending Tok Geok Peng said this fine-tuning move will give borrowers peace of mind in handling their mortgage loan repayment, regardless of their debt servicing status. "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."

UOB head of personal financial services Dennis Khoo said the revised TDSR rules are a step in the right direction to address the needs of homeowners trying to better manage their monthly cash flow through refinancing. "Ultimately, a home financing solution must suit their needs and financial situation. We encourage customers to consider and be clear about the long-term commitments of home ownership, and to ensure they have enough funds to provide for any unforeseen circumstances."

In its financial stability review in November 2015, MAS estimated 5-10 per cent of households have debt-servicing ratios above 60 per cent. It said then that while the number is expected to decline as households pay down their loans, that process will take time.

The same MAS review showed almost all new housing loans granted since the introduction of TDSR fell within the 60 per cent threshold. It is understood about 2.5 per cent of new home loans are currently breaching the TDSR limit. But these would be loans granted on an exceptional basis and which had to be approved by the banks' board of directors, MAS said in 2013, when TDSR was introduced.

The proportion of new housing loans with TDSR of less than 40 per cent stood at 40 per cent in the third quarter of 2015.

Cushman & Wakefield director of research Christine Li said MAS's move to tweak TDSR for refinancing is a timely one so as to ensure the stability of the property market.

"While the mortgage rates are still low, the inability to refinance under the old TDSR rules could result in some foreclosures where home owners are forced to sell their properties in a down market," she said.

Knight Frank Singapore research head Alice Tan noted, though, that the fine tuning would not significantly boost demand for properties since it does not apply to new property loans. "Despite pockets of encouraging sales, the general mood in the private housing market remains muted amid growing headwinds from slowing economic growth and (worries about) job security."

CBRE Research head of Singapore and South-East Asia Desmond Sim commented that while developers may be disappointed that the authorities are not relaxing the property cooling measures, they may also be heaving a sigh of relief that the MAS announcement does not make things any worse for them either.

JLL national director Ong Teck Hui highlighted that the "mention that the move does not represent a relaxation of the cooling measures reinforces similar earlier statements, which provides certainty in the market, and that has helped both buyers and sellers to be more decisive".

In July, MAS managing director Ravi Menon said it was not time yet to ease the property cooling measures. He noted that while property prices had fallen 9.4 per cent cumulatively from the peak in the third quarter of 2013, this followed a surge of 60 per cent between 2009 and 2013; over the same period, nominal income was up just 30 per cent.