- POSTED: 11 Feb 2014 22:19
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Several major banks have welcomed the latest move by the Monetary Authority of Singapore (MAS) to make it easier for borrowers to refinance their loans for owner-occupied properties.
SINGAPORE: Several major banks have welcomed the latest move by the Monetary Authority of Singapore (MAS) to make it easier for borrowers to refinance their loans for owner-occupied properties.
This is if the property was bought before the Total Debt Servicing Ratio (TDSR) was introduced on 29 June 2013.
The framework prevents home buyers from taking a loan if their monthly debt obligations exceed 60 per cent of their monthly income.
Some banks say the relaxing of these rules will help homeowners avoid having to force sell their homes.
According to the MAS, five to 10 per cent of households were over-leveraged in 2013.
This means their debt repayment burden exceeded 60 per cent of their monthly income.
This would have made refinancing difficult under the original TDSR framework.
Banks say an increase in interest rates would also have added to the repayment burden and may have forced some to sell off their homes.
But now homeowners can be exempted from TDSR should they wish to refinance the mortgage for the property they live in, even if they own other properties or have other outstanding home loans.
Mr Donald Han, managing director of Chesterton Singapore, said: "In today's market it's not easy to sell, it'll take a longer period to sell, plus the activity in the secondary market has dwindled tremendously compared to five years ago. So it takes a longer period, potentially might have to sell at a depressed price, which has got repercussions in terms of market valuation and that would have a negative spiral to the property market."
Industry experts add that the move is timely.
MAS had said the broadening of exemptions was in response to feedback from borrowers.
Mr Timothy Kua, director of SmartLoans.sg, said: "Homeowners typically pay higher and higher interest rates to banks anywhere between their first to fifth years of their loan tenures, and the MAS measure made it more difficult to switch out to a different bank with a lower interest rate, in a sense trapping them to a bank that they originally signed with.
"So with the relaxation of this rule, homeowners can now look forward to lowering their interests and monthly payments.
"People have been complaining that the measures implemented ironically caused them to incur higher debts when they suddenly face difficulties refinancing their mortgage in a bid to finance their payments."
Some industry players say the latest move is more of a policy tweak or refinement rather than a property easing measure.
In fact, some analysts think it may take at least two more quarters of price declines before the government considers unwinding its property cooling measures.