Government imposes new curbs on property buys through debt servicing framework

[opmi]

I am more interested in those refinancing their SIBOR loans (loose credit underwriting regime) in next few years.
Most people seems to have 2 property. Esp those in 30s and 40s.

maybe cannot refinance their existing loan. And stuck with their existing loans with Board rates (5%). Unless they top up.

[lavue]

So if there is a knee-jerk sell off of developers/banks on Monday, and since we know that such measures have already been put in place (MAS is merely verbalising it to the general public), then any sell-off is unwarranted and we should take the opportunity to scoop up shares?

[smallcaps]

My initial reaction to the policy release: Are there a significant number of people out there who are servicing their repayments with 60% of their gross monthly income? Because if such MAS puts in place this policy, it means MAS has noticed enough no of ppl who are in this situation hence drafting the paper and submiting a policy discussion (this usually takes a few working days at least and civil servant's man-hours).

Also kelv, is it possible to shed light on what the bank's computation of the gross monthly income are? Thanks

To compute affordability

1) Compute the maximum cash instalment per month that you can afford. Banks generally require that this amount not exceed 40% of your gross income but this figure may vary across different lenders.

2) Computer the maximum amount of CPF funds you can use each month to service the loan. Take into account only sums paid into the Ordinary Account (check CPF website for the latest contribution rates; usually, 23%)

3) Add the 2 components (cash + CPF) to determine the maximum monthly instalment that you can afford

4) Calculate the maximum loan that you can obtain based on the monthly instalment derived. This should be based on prevailing interest rates and over the loan period that you desire and are eligible for. (where 3.5% interest comes in)

5) Compute the maximum affordable purchase price. Banks are allowed to finance up to 90% of purchase price or valuation, whichever is lower.

To verify client's income, notice of assessment, payslip or CPF contributions are needed.

Let's say for payslip, there's components like basic, variable, bonuses, allowances, travel allowances etc. We will just take the basic component as the gross income UNLESS the other components have been consistent for 3 months consecutively to be considered 'fixed'. Because we can't be sure that the variable component may fluctuate dramatically and it would be imprudent to include that in. However, clients working for govt sector, a 13th month bonus is always included. Now, if we include that in, we will need to include a 30% haircut to those components.

For notice of assessment, we will just take the annual salary figure from the income header. If the person is self-employed, we will request for CPF contributions to verify the figure is indeed real.

For CPF contributions, we just work backwards using the contributions rates that apply to the age of our client accordingly.

Thanks! Didn't know cash % was separately computed. That means 40% cash of gross + 23% cpf of gross, quite a lot

[opmi]

There is a range of credit underwriting criteria in the market now:

HSBC - very geow. More likely to reject than to relax.
SCB - loose. Exceptions can seek approval from middle mgt.
Local banks - in between.

Now MAS wants everyone to move towards HSBC standard. So you still think it is good for new loans and later on, refinancing???

[cfa]

There is a range of credit underwriting criteria in the market now:

HSBC - very geow. More likely to reject than to relax.
SCB - loose. Exceptions can seek approval from middle mgt.
Local banks - in between.

Now MAS wants everyone to move towards HSBC standard. So you still think it is good for new loans and later on, refinancing???

But many banks are desperate for the housing loan biz. This announcement is as good as NIL .

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During the AFC in 1997/1998 and 2003/2004 SAR crisis , values of properties plunge , many borrowers with LTV more than 100% , assets with negative equity , banks did not take any action so long as the borrowers could continue to service the monthly loan repayments. MAS was fully aware of that , but did MAS ask banks to adhere to the loan covenants ?

[WolfT]

I asked an agent today. She said that the killer is actually this

"take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower"

meaning to say that everything is added up, including your car loan, renovation loan, credit card loan or whatever loan u had with all the banks cannot exceed 60%.

[opmi]

I asked an agent today. She said that the killer is actually this

"take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower"

meaning to say that everything is added up, including your car loan, renovation loan, credit card loan or whatever loan u had with all the banks cannot exceed 60%.

The documentation needed will slow down the credit underwriting and loan approval processes. Theoretically, foreign property loans should be included too.

Actually, the bigger killer is the bringing in the guarantors as co-borrowers. My guess that is quite prevalent in past few years. Income weighted age also quite impactful. Effectively reducing practice of bringing in young but low income to support loan. When all these 'financially engineered' goes refinancing, we will see who has been 'swimming naked'. Hahahhaha.

For AFC, banks and finance cos got ask people to top up equity. During SARS and GFC, never really coz it did not go on long enough.

[CY09]

Hi.

The TDSR methodology only applies to property loans and not other types of loans, hence 60% is pegged to only all property loans.

Secondly, with regards to the Asian crisis of the late 90s, I did ask before in VB whether property owners had to top up their equity, and if I remembered correctly, many older forumers recounted how banks turned a blind eye as long as the applicant continued servicing his monthly mortgages.

[cfa]

Hi.

The TDSR methodology only applies to property loans and not other types of loans, hence 60% is pegged to only all property loans.

Secondly, with regards to the Asian crisis of the late 90s, I did ask before in VB whether property owners had to top up their equity, and if I remembered correctly, many older forumers recounted how banks turned a blind eye as long as the applicant continued servicing his monthly mortgages.

One of my friends who owned 3 properties, banks called him up to top up, he told the bank he couldn't , banks told him as long as he didn't default the monthly repayment, it would be ok.

[WolfT]

Hi.

The TDSR methodology only applies to property loans and not other types of loans, hence 60% is pegged to only all property loans.

Are u sure?
I quote the sentence from MAS website.

"take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower"