Housing loan restrictions were lowered across the board, including for HDB loans, as part of a fresh round of steps to dampen the housing market

The Total Debt Servicing Ratio, the Mortgage Servicing Ratio, and the Loan-To-Value limitations have all been tightened, and there is now a 15-month wait-out time for private property owners who are interested in purchasing HDB resale apartments.

Sep 30, 2022

The government announced in a statement that was issued late last night that new measures to tighten limits on housing loans, including those for public housing, will go into effect on Friday (September 30). This is part of an effort to ensure responsible borrowing and moderate demand in the housing market.

When calculating the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for residential – and non-residential – property, a higher interest rate will be used as the medium-term interest rate floor. This higher interest rate will be taken to be 0.5 percentage points higher than the current rate. The new restriction will apply to loans for the acquisition of real estate in situations in which the Option to Purchase (OTP) is given on or after September 30, 2022, or in situations in which there is no OTP but the date of the Sale and Purchase Agreement is on or after September 30, 2022. The increased rate floor will apply to all property loans, not just residential loans; this includes commercial and construction loans as well.

The private financial organisations are the ones who will continue to set the real interest rates that are charged for mortgages.

Not only will an interest rate floor of 3% be used for computing the eligible loan amount available to borrowers seeking HDB loans for Housing Development Board flats, but the Loan-to-Value (LTV) limit for HDB housing loans will be lowered from 85% to 80%. This change will take effect for loans for public housing flats. The reduced maximum LTV will be applicable to new flat applications for sales exercises that are launched as well as full resale applications that are received by HDB on or after September 30, 2022.

The government plans to impose a wait-out period of 15 months for private residential property owners as well as former private property owners who want to buy a non-subsidised HDB resale flat. This measure is being taken in order to further moderate demand in the HDB resale market, which continues to see the exchange of HDB flats worth a million dollars or more. At the moment, individuals who own private properties can acquire a non-subsidised HDB resale unit on the open market if they sell their private properties within six months of purchasing a HDB flat and if they meet certain other requirements. This is not going to be tolerated any longer.

The wait-out time will not, however, apply to senior citizens aged 55 or older who are relocating from their own private property to a resale apartment with four rooms or less.

According to a statement that was issued jointly by the Housing and Development Board (HDB), the Ministry of National Development (MND), and the Monetary Authority of Singapore (MAS), the new requirement is "a temporary measure that will be reviewed in the future depending on overall market conditions and housing demand." [Citation needed]

"Since the government enacted a comprehensive package of measures in December 2021, the HDB Resale Price Index has grown by more than 5 percent as of the end of the second quarter of 2022, demonstrating a widespread rise in the demand for public housing. "Given the clear upward momentum in HDB resale prices, MND and HDB will introduce a wait-out period of 15 months for private residential property owners (PPOs) and exPPOs to buy a non-subsidised HDB resale flat. This will be done as a temporary measure to moderate demand and ensure that resale flats remain affordable for flat buyers, particularly for first-time buyers.

For the purpose of determining the maximum amount that a borrower is qualified to receive from HDB in the form of a housing loan, HDB will implement a minimum interest rate of 3%, which is equivalent to an increase of 0.5 percentage points over the current interest rate for CPF Ordinary Accounts (OA). New applications that are submitted on or after September 30, 2022 at midnight or later will be subject to the interest rate ceiling. Existing applications for HDB loans will not be impacted in any way. Also unaffected by the new floor is the real HDB concessionary interest rate, which keeps the same at 2.6% per year notwithstanding the introduction of the new floor.

The authorities, when asked to explain the reasons for the decision to tighten the limitations, stated that "Market interest rates have risen dramatically." It is expected that they will continue to rise in the years to come, which will have an effect on the prices of loans used to acquire homes. The government plans to restrict the maximum loan quantum limitations for house loans in order to guarantee responsible borrowing and avoid potential complications in the future with the servicing of home loans.

The following sentence was added to the statement: "Mortgage interest rates that are tied to the 3-Month Compounded Singapore Overnight Rate Average (SORA) have been climbing in recent months. They are anticipated to increase even more in 2023, in tandem with increases in interest rates in the United States, before reaching a level that is greater compared to the lows that were reached between 2013 and 2021.

"In a context with increased interest rates, the updated medium-term rate floors guarantee that individual families will borrow money for real estate acquisitions in a responsible manner. This is required due to the fact that property loans are long-term commitments and are typically the greatest burden that households have. Some borrowers may find that they need to adjust the size of the property loans they want to take out, but they will be better able to keep up with the payments on these loans as interest rates rise.

The government of Singapore increased the additional buyer's stamp duty (ABSD) rates by anywhere from 5 to 15 percentage points in December 2021. These new rates applied to all individuals and entities in Singapore, with the exception of Singapore citizens and permanent residents who were purchasing their first residential property. In addition, the TDSR and LTV limitations for HDB loans have been made stricter.

A frost settled over the real estate market in the months that followed, causing purchasers to draw back, developers to pull back new launches, and land transactions to go silent. Since then, momentum has returned, as seen by the large number of purchasers flocking to new project launches despite record pricing levels and the return of foreign buyers in numbers, all while HDB resale prices continue to inch upwards. It is anticipated that the most recent round of restrictive regulations would provide a new shock to the market as buyers and developers alike need time to process the implications of the changes.