Source: Monetary Authority of Singapore (MAS)
Extract from: PRESS RELEASE 28 JUNE 2013
MAS Introduces Debt Servicing Framework for Property Loans
Singapore, 28 June 2013...
The Monetary Authority of Singapore (MAS) will introduce a Total Debt Servicing Ratio (TDSR) framework for all property loans granted by financial institutions (FIs) to individuals. This will require FIs to take into consideration borrower other outstanding debt obligations when granting property loans. They will help strengthen credit underwriting practices by FIs and encourage financial prudence among borrowers.
2. MAS will also refine rules related to the application of the existing Loan-to-Value (LTV) limits on housing loans. These refinements seek to ensure the effectiveness of the LTV limits that were put in place to cool investment demand in the housing market. In particular, they aim to prevent circumvention of the tighter LTV limits on second and subsequent housing loans.
Introduction of TDSR framework
3. MAS conducted a thematic inspection of banks residential property loan portfolios in 2012. While banks generally had in place sound policies to assess the credit worthiness of borrowers, the inspection and subsequent surveys revealed uneven practices with respect to the application of debt servicing ratios and highlighted areas for improvement in credit underwriting practices.
4. The TDSR framework will provide FIs a robust basis for assessing the debt servicing ability of borrowers applying for property loans, taking into consideration their other outstanding debt obligations. FIs will be required to compute the TDSR, or the percentage of total monthly debt obligations to gross monthly income, on a consistent basis.
5. The coverage of the TDSR framework will be more comprehensive than FI current practice. The TDSR will apply to loans for the purchase of all types of property, loans secured on property, and the re-financing of all such loans.
6. The methodology for computing the TDSR will be standardised. FIs will be required to:
7. FIs will be required to verify and obtain relevant documentation on a borrowers debt obligations and income used in the computation of the TDSR.
- 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;
- apply a specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR;
- apply a haircut of at least 30% to all variable income (e.g. bonuses) and rental income; and
- apply haircuts to and amortise the value of any eligible financial assets taken into consideration in assessing the borrower debt servicing ability, in order to convert them into income streams in computing the TDSR.
8. MAS expects any property loan extended by the FI to not exceed a TDSR threshold of 60% and will regard any property loan in excess of a 60% TDSR to be imprudent. The threshold is set at 60% for a start to allow both the FIs and borrowers to familiarise themselves with the TDSR framework and its computation methodology. MAS will monitor and review the 60% threshold over time, with a view to further encouraging financial prudence.
Refinement of rules related to application of LTV limits
9. MAS will refine certain rules related to the application of the existing LTV limits on housing loans granted by FIs. In particular, MAS will require:
Measures for the long term
- borrowers named on a property loan to be the mortgagors of the residential property for which the loan is taken;
- guarantors who are standing guarantee for borrowers otherwise assessed by the FI at the point of application for the housing loan not to meet the TDSR threshold for a property loan to be brought in as co-borrowers; and
- in the case of joint borrowers, that FIs use the income-weighted average age of borrowers when applying the rules on loan tenure.
10. The new rules will take effect from 29 June 2013.
11. The TDSR framework and refinements to the rules relating to the application of LTV limits are structural in nature, and will be in place for the long term. They aim to encourage prudent borrowing by households and strengthen credit underwriting standards by FIs.
12. They do not involve changes to the LTV limits on housing loans themselves, which were last tightened in January 2013 as part of the government package of measures to promote stable and sustainable conditions in the housing market.9 The current LTV limits are not permanent, and will be reviewed depending on the state of the property market.
13. Please refer to the FAQs on MAS website for further details.
Issued by the Monetary Authority of Singapore (MAS)
...Cross-reference check with 10 Mar 2017 Property Policy
...Cross-reference check with 11 Jan 2013 Property Policy
...Cross-reference check with 5 Oct 2012 Property Policy
...Cross-reference check with 7 Dec 2011 Property Policy
...Cross-reference check with 13 Jan 2011 Property Policy
...Cross-reference check with 30 Aug 2010 Property Policy
...Cross-reference check with 19 Feb 2010 Property Policy
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