For this year alone, we saw four new measures pertaining to loans and credit facilities introduced by Monetary Authority of Singapore (MAS).
On 12 January 2013, MAS tightened further the loan-to-value (LTV) limit for property buyer that was first set in place on 6 October 2012. This latest measure applies to borrowers with one or more outstanding housing loans currently and are taking additional housing loans. LTV limit is reduced to 50% (for second loan) and 40% (for third loan onwards). This measure is to restrict the amount a house buyer can borrow against a property.
On 25 February 2013, MAS announced restrictions on car loans. To get a car loan, borrower can only borrow maximum of 50% or 60% of purchase price (termed as loan-to-value) depending on open market value of car. The total loan period is limited to 5 years max.
On 28 June 2013, MAS introduced Total Debt Servicing Ratio (TDSR) framework for financial institutions (FIs). This framework applies to property loans. Borrower of new property loan must prove that his monthly repayment obligations of all his debts (property loan and other debt obligations) should not exceed 60% of borrower’s gross monthly income.
The latest set of MAS rulings was announced on 11 September 2013. This applies to credit cards and unsecured credits. These debts are not secured against assets such as a property, a car. This will take effect progressively from 1 December 2013. See footnote below.
From the above, MAS has tightened loans to property buyers, car buyers and those who utilise unsecured credit including credit card. I support these measures as they prevent someone from borrowing beyond their means of repaying them.
A. Car loan
On 25 February 2013, MAS announced restrictions on car loans granted by financial institutions:
(i) For a car with open market value (OMV) that does not exceed $20,000, the maximum loan-to-value (LTV) is 60% of the purchase price, including relevant taxes and the price of the Certificate of Entitlement, where applicable; and
(ii) For a car with OMV of more than $20,000, the maximum LTV is 50%.
(iii) The tenure of a car loan will be capped at 5 years.
These restrictions took effect from 26 February 2013.
B. Property Loan
(i) Financial Institutions (FIs) will be required to compute the Total Debt Servicing Ratio (TDSR), or the percentage of total monthly debt obligations to gross monthly income, on a consistent basis.
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.
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.
Took effect on 29 June 2013. (Source: MAS)
(ii) With effect from 12 January 2013, MAS lowered the LTV limits for housing loans to individuals with one outstanding housing loan from 60% to 50%, and to individuals with two or more outstanding housing loans from 60% to 40%. Loans with longer tenure faced even tighter LTV limits. The LTV limit for housing loans to non-individuals was also reduced to 20%. (Source: MAS)
C. Credit Cards and Unsecured Credit Facilities
a) From 1 December 2013, FIs must conduct credit bureau and income checks to establish credit-standing of individuals before increasing credit limits.
b) From 1 June 2014, FIs must review borrowers’ outstanding debt and credit limits in credit bureau checks.
c) From 1 June 2015, no further lending of unsecured credit by any FI if the borrower default for 60 days on credit card bills or other unsecured credit facility. No new credit card, unsecured credit facilities and increase in credit limit is possible for this individual. FIs cannot grant further unsecured credit to those whose total outstanding unsecured debt exceeds 12 months of their income for 90 days or more. (Source: Today Newspaper, 12 September 2013)
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