Tighter borrowing limits in line with weakening risk appetite among banks: mortgage brokers

THE government’s move to limit how much property buyers can borrow is largely in line with the weakening risk appetite among banks, mortgage brokers said.

Among the latest measures to cool the property market, the medium-term interest rate floor, used to compute the total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR), will be raised by half a percentage point for loans for the purchase of properties on or after Sep 30.

This is expected to ensure prudent borrowing as interest rates rise, said the Housing and Development Board, Ministry of National Development, and the Monetary Authority of Singapore (MAS) in a joint statement late on Thursday (Sep 29).

The change lowers the maximum amount that buyers can borrow, but Clive Chng, an associate director at Redbrick Mortgage Advisory, said the banks would have already intended to account for rising interest rates by raising their internal stress test rates.

“When interest rates rise, the banks have the prerogative to move the stress test interest rate up if they deem necessary,” Chng said.

He noted that the banks had already hinted they would do so should interest rates continue to rise.

Wayne Quek, senior mortgage advisor at Home Loan Whiz, said the banks have indicated they will adjust the TDSR to 4 per cent for refinancing even if the property was purchased before Sep 30.

Mortgage brokers polled by The Business Times also said the new rules are unlikely to have a direct impact on mortgage rates.

Darren Goh, executive director of MortgageWise.sg, nevertheless said he found it “unusual and interesting” that the terms of the new measures were to raise the floor to either 4 to 5 per cent, or the thereafter interest rate, whichever is higher.

The thereafter interest rate is the highest possible interest rate applicable during the tenure of a property loan, excluding introductory or promotional rates.

“MAS is actually very prudent in ensuring that they do not just set a higher rate for now, but also make sure that buyers take into account future essential factors at the point of sign-up,” Goh said.

Goh noted the possibility of banks needing to reconsider their spreads if Singapore Overnight Rate Average rates rise and cause their thereafter rates to exceed the 4-5 per cent floor.