Tighter borrowing limits in line with weakening risk appetite among banks
Tighter borrowing limits in line with weakening risk appetite among banks. According to mortgage brokers, the government’s move to limit how much home buyers can borrow is mostly motivated by banks’ declining risk appetite.
For loans made on or after September 30, the medium-term interest rate floor, which is used to determine the total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR), will be raised by half a percentage point. According to a joint statement issued late Thursday by the Housing and Development Board, the Ministry of National Development, and the Monetary Authority of Singapore (MAS), this is meant to ensure prudent borrowing when interest rates rise (Sep 29).
The change limits the maximum amount that buyers can borrow, but Clive Chng, an associate director at Redbrick Mortgage Advisory, says banks would have anticipated higher interest rates by upping internal stress test rates anyhow. “When interest rates rise, banks can boost the stress test interest rate if they believe it is necessary,” Chng explained. He stated that banks had already signaled that if interest rates continued to rise, they would do so.
Banks have announced that they will cut the TDSR to 4% for refinancing even if the home was purchased before September 30, according to Wayne Quek, senior mortgage advisor at Home Loan Whiz. The new restrictions, according to mortgage brokers polled by The Business Times, are unlikely to have an immediate impact on mortgage rates. The new measures, according to Darren Goh, executive director of MortgageWise.sg, would boost the floor to either 4 to 5% or the subsequent interest rate, whichever is higher.
The maximum potential interest rate that can be applied during the period of a property loan, excluding introductory or promotional rates, is known as the ultimate interest rate. “MAS is actually quite cautious in ensuring that they not only set a higher rate for now, but also ensure that buyers consider future critical elements at the point of sign-up,” Goh noted. Banks may need to reconsider their spreads if Singapore Overnight Rate Average rates rise, leading their subsequent rates to exceed the 4-5 percent floor, according to Goh.
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