VIRUS OUTBREAK

TDSR waived for deferred mortgage payments

MAS clarifies various scenarios where total debt servicing ratio, mortgage servicing ratio and loan-to-value limits will not apply

Wed, Apr 08, 2020

Kelly Ng


BUSINESSES that apply to defer payments for their secured property loans, as well as property owners doing so for residential mortgages, will not be subject to the total debt servicing ratio (TDSR), the Monetary Authority of Singapore (MAS) said on Tuesday.

Businesses that have taken up mortgage equity withdrawal loans secured on residential or non-residential properties are also not subject to property curbs such as TDSR and loan-to-value (LTV) limits.

The TDSR sets limits on how much property buyers can borrow against their monthly income.

Typically, financial institutions must ensure that borrowers' monthly repayment for all debts does not exceed 60 per cent of their monthly income. This includes the mortgage, credit card bills, car loans, and personal loans. The LTV refers to the ratio of the home loan to the value of the property.

Responding to queries from the public and media on its guidelines for deferment of secured loans and mortgage payments, the MAS on Tuesday clarified various scenarios where these limits will not apply.

Small- and medium-sized enterprises (SMEs) borrowers are not subject to TDSR if they apply for payment deferments on their secured property loans, as provided under the latest MAS relief guidelines announced in late-March. SMEs are defined as firms or sole proprietors which have annual sales turnover of up to S$100 million or employment size of up to 200 workers.

For individuals, including sole proprietors, the MAS said that the TDSR will not apply to deferment of mortgage repayments for residential, commercial, and industrial properties.

For residential properties, borrowers are not subject to TDSR when they apply to defer either their principal payment or both principal and interest payments on their mortgages. Interest will accrue only on the deferred principal amount.

Those seeking to refinance mortgages for properties they reside in will also not be subject to TDSR and LTV limits. This will help borrowers with fixed rate mortgage packages that are out of the lock-in period, and who want to refinance their loans at a lower interest rate, said the MAS.

MAS also said that the mortgage servicing ratio (MSR), where applicable, is lifted as well. The MSR refers to the portion of a borrower's gross monthly income that goes towards repaying all property loans, including the loan being applied for, but applies only to housing loans for the purchase of an HDB flat or an executive condominium (ECs) bought directly from a developer. MSR is capped at 30 per cent of a borrower's gross monthly income.

With this latest relief, borrowers are now not subject to both TDSR and MSR when they refinance their owner-occupied loans for HDB flats and ECs.

The authority said that most major retail banks have extended payment deferments to individuals with commercial or industrial property loans as well. As in the case of residential mortgages, these borrowers are not subject to TDSR when they defer their repayments.

Those with mortgage equity withdrawal loans secured on their existing private residential and non-residential properties will also be exempted from TDSR limits if the LTV ratio does not exceed 50 per cent, as per an adjustment already introduced in March 2017.

Borrowers will not be bound to TDSR requirements if they take up unsecured credit facilities, such as credit cards and personal loans, MAS said. But, the financial regulator said there are minimum income requirements for such facilities, and there remain industry-wide borrowing limits to promote financial prudence and to avoid "the excessive accumulation of debt that would lead to future financial strain".

"In this regard, we urge individuals to exercise prudence when tapping into credit lines," said the MAS.

On March 31, the MAS and other industry bodies outlined, among other things, that banks and finance companies must allow deferments through to the end of the year of principal repayments of qualifying mortgages and secured corporate loans.

This is aimed at helping SME borrowers and individuals hit by a sharp loss of income due to the novel coronavirus pandemic.