In the face of rising market interest rates, the government announces yet another set of property cooling measures – Blossoms By The Park Condo at Slim Barracks Rise By EL Developments (Hot Launch 2022)

The government has also introduced new collection of property cooling measures. In this case, it is aiming to promote that borrowing is prudent in the face of increasing rate of interest on the market. The latest set of cooling measures attempts to reduce demand within the Housing & Development Board (HDB) sale market, so that HDB flats that are resold remain affordable.

The new regulations will take effect on Sept . 30.

The measures were announced in conjunction by HDB, HDB, the Monetary Authority of Singapore (MAS) as well as HDB, the Ministry of National Development (MND) and HDB in the early hours of September 29. The most recent collection of measures to cool the economy was announced just one year ago on the 16th of December, 2021.

The higher interest rate floor

In the context of these options, MAS will assume higher interest rates when assessing the borrower ability to repay. This revision is a reflection of the higher interest rates expected in the medium term, in comparison to the period that was “exceptionally affordable rates” from 2013 until 2021.

This will be accomplished by two ways. For property loans made from private banks MAS will increase the floor of interest rates for medium-term loans that is used to calculate the total debt service ratio (TDSR) and mortgage servicing ratio (MSR) by 0.5 percentage points.

This means that residential property purchase loans as well as the mortgage equity withdraw loans are based upon a mid-term interest rate minimum that is 4% per year (p.a.) up from 3.5% previously, or the interest rate after.

The rates applicable to residential and non-residential property purchase loans as well as the mortgage equity withdraw loans have been increased up to 5% p.a. instead of 4.5% previously.

This will be applicable on loans to property purchase where an option to buy (OTP) has been granted after September 30. If there’s no OTP the same applies to all sale and purchase agreements (SPA) that are signed at or after Sept. 30.

In the meantime, HDB will introduce an interest rate ceiling of 3% to calculate the acceptable amount of loans for HDB home loans.

The floor on interest rates will apply to applicants to the HDB Credit Eligibility (HLE) note by or on or after Sept. 30. According to HDB the move does not impact the actual HDB discount rate that will remain with 2.6% p.a. from October 1 until December 31.

“The new rates for the medium-term make sure that households borrow wisely to finance the purpose of property purchase in the more rates of interest,” reads the joint statement. “This is essential since property loan commitments are for the long term, and typically the household’s biggest debt. Certain borrowers might need to reduce the size of their property loans but they’ll be better able to repay these loans in the event that the interest rates increase.”

Lower LTV limit

In addition the government will reduce its loan-to value (LTV) amount for HDB mortgages up to% as opposed to 85% prior to. Lower LTV limit will be applicable to flat-new applications as well as applications to resell after Sept . 30.

As per MAS, MND and HDB The new measures aren’t expected to impact the first-time homebuyers or lower-income buyers because of the “significant home loans”.

The new LTV limit is not applicable to loans made by financial institutions that are private where the LTV limit is still 75%.

A 15-month waiting period will be set on private residential property owners as well as former homeowners of residential private properties to purchase a non-subsidised HDB flat for resale to meet modest demand within the HDB resales market. The wait-out timeframe will not apply to people who are 55 years or older who are planning to move to a smaller four-room flat that is being resold. The measure is believed to be temporary to be reviewed in future based on housing market and the conditions.