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Refinancing reprieve for homeowners who bought before last June 29

TDSR cap waived if owner-occupied; same for investment units subject to terms

[SINGAPORE] Leveraged homeowners mulling over refinancing of their mortgages have been given a breather from the strict debt rules governing mortgages.

The Monetary Authority of Singapore (MAS) said yesterday that with immediate effect, refinancing of loans for owner-occupied homes bought before June 29, 2013 will be exempted from the total debt servicing ratio (TDSR) cap of 60 per cent - under which a borrower's monthly instalments for all debt servicing including mortgage payments cannot exceed 60 per cent of gross monthly income.

Previously, owner-occupiers who wanted to refinance their loans could be exempted from this rule only if they owned no other property and had no other home loan.

Apart from homeowners, banks too are likely to find this latest policy tweak welcome relief as it may help to revive the refinancing market, given the sharp fall in new home loan sales since the TDSR framework was introduced last June.

"This is primarily related to the refinancing of mortgages for owner-occupied properties and none of the exemptions will apply to new mortgages," said Citi economist Kit Wei Zheng in a note. "Hence, we do not see this as a relaxation of the cooling measures, as we expect no discernible impact on buying sentiment going forward."

Shorter loan tenure rules will also not apply to such refinancing. This means borrowers whose loan tenures exceed the current regulatory limit of 35 years will be allowed, at the point of refinancing, to keep to the remaining tenures of their loans, calculated from when the loans were first disbursed.

The exemptions apply to owner-occupied residential and all investment properties. However, an investment property borrower has to carry out the refinancing by June 30, 2017, and must also commit to a debt reduction plan at the point of refinancing.

MAS said it had received feedback from borrowers who face challenges refinancing loans for owner-occupied properties bought before the introduction of the TDSR rules. "MAS has decided to broaden the existing exemption from the TDSR threshold of 60 per cent for such loans to ease the debt servicing burden of these borrowers."

Since the government introduced the TDSR, borrowers have felt that the rules made them hostage to their lender. Most home loan packages offer initial low two-year teaser interest rates, with the rates jacked up substantially from the third year onwards.

Many borrowers would then refinance their loans to enjoy teaser rates again or, if they thought interest rates were rising, might opt for a fixed-rate loan.

For HDB flats and executive condominiums (ECs) which are owner-occupied and were bought before their respective mortgage servicing ratio (MSR) implementation dates, the 30 per cent MSR will also not apply to the refinancing of loans, MAS said.

Koh Ching Ching, OCBC Bank's head of group corporate communications, said: "The exemption from TDSR rules for refinancing of owner-occupied residential properties is welcome as some borrowers with good reasons to refinance will now face less difficulties."

The latest concessions should not be seen as a policy U-turn as the TDSR was implemented to rein in excessive borrowing. Rather, it fits with the bigger picture of helping to ease the debt burden.

Lui Su Kian, MD and head, deposits and secured lending, DBS Bank, said: "With the latest announcement, more homeowners can now benefit from newer financing options that are available in the market. We offer the widest range of loan programmes in Singapore and are the only bank to offer a five-year, fixed-rate package."

Last year, MAS said that 5-10 per cent of Singapore borrowers were in danger of being overstretched and the proportion of "at-risk" borrowers might rise to 15 per cent if mortgage rates climbed three percentage points.

Ms Koh said: "The older home loans were not assessed with the new TDSR rules and hence the exemption for properties bought before the introduction of the stipulated TDSR rules is therefore fair."

Industry observers say that the exemptions would offer some relief to debt- stressed borrowers, who may be forced to sell their properties because they cannot afford the higher interest rates.

Nicholas Mak, executive director at SLP International, reckons that the impact on the real estate market would be minimal.

Said Alan Cheong, Savills Singapore research head: "It sends the right signal to the market that MAS is willing to do its part to ensure that the market does not become afflicted by too many distressed sellers that got flushed out due to the TDSR."

If not for this exemption, some may otherwise have to fork out additional equity, and in doing so, possibly upset their financial plans, he said.

"Therefore, this latest move is deemed positive because if it hadn't been enacted, it could have meant a potential supply of forced-sale properties."

With additional reporting by Kalpana Rashiwala