On 10 February 2014, the Monetary Authority of Singapore (the "MAS") announced that a borrower who seeks to refinance a loan relating to a residential property purchased before the introduction of the Total Debt Servicing Ratio (the "TDSR") rules will be exempted from the TDSR threshold of 60% as long as he occupies the property. Essentially, the exemption applies to the purchase of a residential property whereby the option to purchase ("OTP") was granted before 29 June 2013. The MAS has made the necessary amendments to the Notices and Guidelines in relation to Residential Property Loans and the Computation of Total Debt Servicing Ratio for Property Loans to take effect from 10 February 2014.
The MAS introduced the TDSR framework with effect from 29 June 2013 for all property loans granted by financial institutions ("FIs") to individuals. The TDSR framework requires Fls to factor in the borrower's other outstanding debt obligations when granting property loans. The MAS expects Fls to observe a TDSR threshold of 60% when granting property loans to individuals, that is to say, the individual's monthly total debt obligations must not exceed 60% of his gross monthly income.
Refinancing of owner-occupied property loans
Since the implementation of the TDSR framework, the MAS received feedback from borrowers who faced challenges refinancing loans for owner-occupied properties which were bought before the introduction of the TDSR rules. Following the feedback, the MAS decided to broaden the exemption from the TDSR threshold of 60% for such loans to ease the debt servicing burden for such borrowers.
The Mortgage Servicing Ratio ("MSR") will also not apply to the refinancing of loans for HDB flats and executive condominiums which are owner-occupied and purchased before their respective MSR implementation dates, i.e. the OTP was granted before 12 January 2013 for HDB flats and 10 December 2013 for executive condominiums purchased directly from a property developer.
There is a similar concession with regard to loan tenures for residential properties purchased before the respective implementation dates for the loan tenure limits (OTP granted before 28 August 2013 for HDB flats and 6 October 2012 for other residential properties). Borrowers whose loan tenures for their owner-occupied residential properties exceed the current regulatory limits will be allowed to maintain the remaining tenures of their loans at the point of refinancing.
Transition period until 30 June 2017 for refinancing of investment property loans
The TDSR threshold of 60% will continue to apply to the refinancing of all investment property loans. However, the MAS will allow a transition period until 30 June 2017, during which a borrower may refinance his investment property loans above the 60 % threshold if he commits to a debt reduction plan with the Fl at the point of refinancing, fulfils the Fl's credit assessment and the OTP of the property was granted before 29 June 2013.