New DBS loan lets private property owners borrow against homes to fund retirement

Aug 17, 2021


TO help retirees make the most of their home equity, DBS is letting seniors in Singapore borrow against their fully paid private homes to supplement their retirement incomes.

Under its new home equity income loan scheme, Singaporeans and permanent residents aged 65 to 79 who own and reside in fully paid private properties will be able to take out loans to top up their Central Provident Fund (CPF) retirement sums, so as to raise the monthly payouts they receive under the CPF Life (Lifelong Income For The Elderly) scheme. CPF Life is a longevity insurance annuity scheme that provides a monthly payout for as long as its member lives.

In designing the scheme, DBS said it took reference from, among other data, working research from the Wharton Pension Research Council which found that an average homeowner above the age of 50 in Singapore holds some 60 per cent of their total net wealth in housing equity, suggesting potential demand for reverse mortgage loans.

According to CPF data, over a third of CPF members have less than the basic retirement sum when they turn 55 years old.

Loan quantums under DBS' new scheme will be determined based on the prevailing market value of the properties and the seniors' retirement needs, DBS said in a media briefing on Monday. The bank will not assess borrowers' total debt servicing capabilities, it said, as retirees will not have monthly incomes.

At the minimum, this will be an amount needed to meet the full retirement sum - which is S$186,000 for the current cohort turning 55 this year. It is possible for the loan amount to be topped up throughout the tenure.

The maximum loan that can be extended will be the amount needed to top up to the prevailing CPF enhanced retirement sum, or S$279,000 for the current cohort.

The loan will last for up to 30 years, with its interest rate fixed throughout the loan period. Currently, the loan will be extended at 2.88 per cent per annum, but this rate could be adjusted for subsequent borrowers based on changing market conditions.

Top-ups are not required if the property's value falls during the loan period.

While the Singapore government's lease buyback scheme allows public housing owners to monetise their flats to supplement their retirement income, the pre-existing options for private property owners to unlock liquidity typically require them to downsize, find alternative housing options, or be beset with additional debts that require monthly repayments, noted Tok Geok Peng, head of home financing at DBS's consumer banking group.

Rather than making monthly repayments, the loan amount and accrued interest under DBS's new scheme will be repaid as one lump sum at loan maturity. The bank will reach out to the customers and their family members a year before maturity to remind them to plan their finances ahead of time.

In cases where customers are bankrupted during the loan tenure or outlive loan maturity, the bank "will not take immediate action against the property", DBS said.

"The intent is to allow them to continue to live in the property. Concurrently, we could work with them or their family members for a possible solution. But we are not setting ourselves a deadline to do so, so that the family members have sufficient time to think through various options," Ms Tok said.

If a member dies during the loan period, the bank will work with his or her estate for possible repayment options, which could include selling the property to repay the loan or restructuring the loan.

DBS' head of deposits, financing solutions and ecosystems P'ing Lim said the new scheme addresses existing gaps in the market and serves as a pre-emptive measure to help retirees plan for the future.

"We considered that the long loan period, coupled with steady retirement income, ensures retirees will be well placed to decide what they want to do next with their property, whether it's to time the market to sell, to rent out a room, downsize, or transfer the property to their successors when they pass on," she said.

In a statement on Monday, a CPF spokesperson said: "We look forward to seeing other banks launch similar loans to complement the housing monetisation options offered by the government to HDB (Housing and Development Board) flat owners so that more CPF members can enjoy the benefits of CPF Life and have a secure retirement.

In response, UOB said it already has a suite of solutions, including equity term loans, to help private property owners unlock the value of their property. These loans are made to private property owners based on the value and outstanding loan of their property, as well as the amount of CPF funds used in the purchase of the property.

OCBC said it currently does not offer reverse mortgage for private property owners and will continue to assess demand for such solutions. Instead, private home owners can apply for equity term loans on an unencumbered property, or a property with an existing loan.