Rules tweaked to help home owners refinance mortgages

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Rules tweaked to help home owners refinance mortgages

Published on Feb 11, 2014

By Melissa Tan


THE central bank has made it easier for home owners to refinance their existing mortgages.

It yesterday widened an exemption on tough mortgage rules to include more borrowers who bought their residential properties before the total debt servicing ratio (TDSR) framework took effect in late June last year.

Mortgage consultants and banks welcomed the move, saying it was fair to those home buyers. But while some market watchers wondered whether this hinted at a relaxation of cooling measures, others said it was not a sign that the Government was easing curbs.

Under the revised rules, home owners who are refinancing the loan for the home they live in will be exempt from meeting the TDSR requirement even if they own other properties and are servicing other property loans, the Monetary Authority of Singapore said.

Previously, owner-occupiers were exempt from the TDSR only if they did not own any other property or did not have any other outstanding mortgage.

The TDSR framework stops borrowers from taking or refinancing home loans that will bring their total monthly debt repayments to over 60 per cent of their gross monthly pay. Those who bought homes as investments before June 29 last year also received a reprieve from the TDSR limit, though subject to conditions.

MAS yesterday said it would "allow a transition period" until June 30, 2017, during which borrowers can refinance loans for their investment homes above the 60 per cent limit. However, they must commit to a debt-reduction plan with their bank at the point of refinancing and must also fulfil the bank's credit assessment.

The rule changes are meant to "help borrowers ease their immediate debt-servicing burdens, while encouraging those who have taken on high leverage on their investment properties to right-size their loans", MAS added.

Mortgage consultants said borrowers will benefit from the change as some were previously stuck with their existing loans.

Mr Alfred Chia, chief executive of financial advisory firm SingCapital, said many people were tied in, which helped banks "tie down their clients".

Banks yesterday said they welcomed MAS' move. "Some borrowers with good reasons to refinance will now face less difficulty. The older home loans were not assessed with the new TDSR rules and hence the exemption... is therefore fair," said Ms Koh Ching Ching, group corporate communications head at OCBC.

But market watchers' views differed on the implications. "It could be a prelude to more relaxation of cooling measures," said real estate lawyer Lee Liat Yeang.

Taking a different view, Citi economist Kit Wei Zheng said in a note that since the TDSR rules still applied to new home buyers, "we hesitate to call this a property relaxation measure".

Apart from the TDSR, some owner-occupiers were also given exemptions from mortgage servicing ratio (MSR) rules and loan tenure limits yesterday. Those who bought HDB flats or executive condominium units before the MSR rules kicked in - which capped monthly home loan repayments at 30 per cent of gross income - are exempt from those rules when refinancing their homes, MAS said.

It added that a similar concession applies to loan tenure limits, for owner-occupied homes bought before the implementation dates for those rules. Borrowers whose loan tenures exceed the current regulatory limits can now keep the remaining tenures of their loans when they refinance.

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Published February 11, 2014

Refinancing reprieve for homeowners who bought before last June 29

TDSR cap waived if owner-occupied; same for investment units subject to terms

By Siow Li Sen [email protected]


[SINGAPORE] Leveraged homeowners mulling over refinancing of their mortgages have been given a breather from the strict debt rules governing mortgages.

The Monetary Authority of Singapore (MAS) said yesterday that with immediate effect, refinancing of loans for owner-occupied homes bought before June 29, 2013 will be exempted from the total debt servicing ratio (TDSR) cap of 60 per cent - under which a borrower's monthly instalments for all debt servicing including mortgage payments cannot exceed 60 per cent of gross monthly income.

Previously, owner-occupiers who wanted to refinance their loans could be exempted from this rule only if they owned no other property and had no other home loan.

Apart from homeowners, banks too are likely to find this latest policy tweak welcome relief as it may help to revive the refinancing market, given the sharp fall in new home loan sales since the TDSR framework was introduced last June.

"This is primarily related to the refinancing of mortgages for owner-occupied properties and none of the exemptions will apply to new mortgages," said Citi economist Kit Wei Zheng in a note. "Hence, we do not see this as a relaxation of the cooling measures, as we expect no discernible impact on buying sentiment going forward."

Shorter loan tenure rules will also not apply to such refinancing. This means borrowers whose loan tenures exceed the current regulatory limit of 35 years will be allowed, at the point of refinancing, to keep to the remaining tenures of their loans, calculated from when the loans were first disbursed.

The exemptions apply to owner-occupied residential and all investment properties. However, an investment property borrower has to carry out the refinancing by June 30, 2017, and must also commit to a debt reduction plan at the point of refinancing.

MAS said it had received feedback from borrowers who face challenges refinancing loans for owner-occupied properties bought before the introduction of the TDSR rules. "MAS has decided to broaden the existing exemption from the TDSR threshold of 60 per cent for such loans to ease the debt servicing burden of these borrowers."

Since the government introduced the TDSR, borrowers have felt that the rules made them hostage to their lender. Most home loan packages offer initial low two-year teaser interest rates, with the rates jacked up substantially from the third year onwards.

Many borrowers would then refinance their loans to enjoy teaser rates again or, if they thought interest rates were rising, might opt for a fixed-rate loan.

For HDB flats and executive condominiums (ECs) which are owner-occupied and were bought before their respective mortgage servicing ratio (MSR) implementation dates, the 30 per cent MSR will also not apply to the refinancing of loans, MAS said.

Koh Ching Ching, OCBC Bank's head of group corporate communications, said: "The exemption from TDSR rules for refinancing of owner-occupied residential properties is welcome as some borrowers with good reasons to refinance will now face less difficulties."

The latest concessions should not be seen as a policy U-turn as the TDSR was implemented to rein in excessive borrowing. Rather, it fits with the bigger picture of helping to ease the debt burden.

Loi Su Kian, MD and head, deposits and secured lending, DBS Bank, said: "With the latest announcement, more homeowners can now benefit from newer financing options that are available in the market. We offer the widest range of loan programmes in Singapore and are the only bank to offer a five-year, fixed-rate package."

Last year, MAS said that 5-10 per cent of Singapore borrowers were in danger of being overstretched and the proportion of "at-risk" borrowers might rise to 15 per cent if mortgage rates climbed three percentage points.

Ms Koh said: "The older home loans were not assessed with the new TDSR rules and hence the exemption for properties bought before the introduction of the stipulated TDSR rules is therefore fair."

Industry observers say that the exemptions would offer some relief to debt- stressed borrowers, who may be forced to sell their properties because they cannot afford the higher interest rates.

Nicholas Mak, executive director at SLP International, reckons that the impact on the real estate market would be minimal.

Said Alan Cheong, Savills Singapore research head: "It sends the right signal to the market that MAS is willing to do its part to ensure that the market does not become afflicted by too many distressed sellers that got flushed out due to the TDSR."

If not for this exemption, some may otherwise have to fork out additional equity, and in doing so, possibly upset their financial plans, he said.

"Therefore, this latest move is deemed positive because if it hadn't been enacted, it could have meant a potential supply of forced-sale properties."

With additional reporting by Kalpana Rashiwala