Coming Soon to Singapore: Relief for Home Buyers, Renters

[Jacmar]

With regard to the LTV limit loan, I have a few questions.

Assuming I purchase a private property worth 2M in 2013. With the current LTV limit, I borrow 1.2M and use 800k of my proceeds for the purchase

Lets say it is 2016 and a recession hits. The price of my property market value is now 1.6M. It means that I have to pay up the shortfall of 240k (60% of value 1.6M) to ensure that my LTV limit still adheres to 60%. here is my question. Assuming because of this recession, the govt relaxes the LTV limit to 80%. Is my loan now subjected to the new limit or still to the 2013 rule of 60% limit? Otherwise is it possible to refinance my 2013 housing loan with a new loan deal so that I will be able to enjoy the relaxed LTV limit of 80%?

Second part: because I was relatively young during the 1997-1998 Crisis which it hit Singapore, could anyone recount if it was easy for banks to turn a blind eye to the fact that your loan did not meet LTV limits so long you continued to service your debts/interests. The reason I am asking is because if banks are able to give you leeway in not covering up the shortfall, this means forced selling of properties would not happen, thus preventing a sudden collapse of property prices.

Thanks

The banks will bend backwards for you not to recall your loans especially in a recession. What are they going to do with so many properties on their hands. they will only "force' to do so if you cannot keep up with your mortgage payments after they call you a few times to work on a revise payment schedule. Of course if you declare bankrupt, then no choice they have to seize prop. So even if you breach the LTV they will not call you to top up as the loan is taken base on the prevailing LTV when you took the loan. However if you try to refinance then the latest LTV will apply.

Let me give you a real example that happened to me long ago in the 80's. prop price for a condo was $340k. paid 20% already(about $70k), so balance is about $270k. Price in the 80's recession dropped the prop to around $250-260k. This means negative already already. Since I was young and still able to pay, no call up by the banks at all.

Hope this helps.

[CY09]

  Second Property.xlsx (Size: 16.08 KB / Downloads: 10) Thanks for the replies.

Judging from the fact that banks can turn a blind eye. My guess is that only when interest rates becomes too high, then would banks decide to take it back.

I did a rough calculation of how high I/r must be to stretch a household to the maximum of being able to service a second prop loan but still good enough that the banks will not foreclose them.

If a household earns 12k per month, purchases a $1.5M second property and rents it out for 1.5k per month (1.2% yield). They will be able to service their 30yr second property loan assuming they devote 25% of their income to it and their wages increase 2% annually. I assumed first 3 years of interest rate is 1.5% because of the current economic situation and will suddenly spike to 5% after 2016.

[specuvestor]

With regard to the LTV limit loan, I have a few questions.

Assuming I purchase a private property worth 2M in 2013. With the current LTV limit, I borrow 1.2M and use 800k of my proceeds for the purchase

Lets say it is 2016 and a recession hits. The price of my property market value is now 1.6M. It means that I have to pay up the shortfall of 240k (60% of value 1.6M) to ensure that my LTV limit still adheres to 60%. here is my question. Assuming because of this recession, the govt relaxes the LTV limit to 80%. Is my loan now subjected to the new limit or still to the 2013 rule of 60% limit? Otherwise is it possible to refinance my 2013 housing loan with a new loan deal so that I will be able to enjoy the relaxed LTV limit of 80%?

Second part: because I was relatively young during the 1997-1998 Crisis which it hit Singapore, could anyone recount if it was easy for banks to turn a blind eye to the fact that your loan did not meet LTV limits so long you continued to service your debts/interests. The reason I am asking is because if banks are able to give you leeway in not covering up the shortfall, this means forced selling of properties would not happen, thus preventing a sudden collapse of property prices.

Thanks

The banks will bend backwards for you not to recall your loans especially in a recession. What are they going to do with so many properties on their hands. they will only "force' to do so if you cannot keep up with your mortgage payments after they call you a few times to work on a revise payment schedule. Of course if you declare bankrupt, then no choice they have to seize prop. So even if you breach the LTV they will not call you to top up as the loan is taken base on the prevailing LTV when you took the loan. However if you try to refinance then the latest LTV will apply.

Let me give you a real example that happened to me long ago in the 80's. prop price for a condo was $340k. paid 20% already(about $70k), so balance is about $270k. Price in the 80's recession dropped the prop to around $250-260k. This means negative already already. Since I was young and still able to pay, no call up by the banks at all.

Hope this helps.

It actually depends on the banks and the credit department. It is good to be shareholders of UOB and Stand Chart when crisis hits but not their loan customers. But generally banks does not ask for equity top up en masse and lenient as long as monthly payments are met.