From 13 January 2011 to 14 February 2011, the Monetary Authority of Singapore (the “MAS”) is seeking comments on the proposals in its consultation paper entitled “Rules on Residential Property Loans”. Primarily, the MAS proposes a requirementfor financial institutions (“FIs”) to comply with regulatory loantovalue (“LTV”) limits on mortgage equity withdrawal loans (“MWLs”) and to aggregate loans from moneylenders used to pay for residential property purchases, for LTV computation.
Annexed to the consultation paper is a revised draft of the MAS Notice to Banks entitled “Residential Property Loans” (MAS 632) reflecting the proposed changes.
Regulatory LTV limits on MWLs
FIs may grant loans to borrowers that are not for the purchase of, but are nevertheless secured on, residential property. These loans include mortgage equity withdrawal loans (“MWLs”), which are loans secured on the borrower’s equity in a residential property.
On 13 January 2011, the MAS, jointly with the Ministry of Finance and the Ministry of National Development, issued a statement announcing measures to maintain a stable and sustainable residential property market in Singapore. The measures are effective from 14 January 2011 and include LTV limits of 60% and 50% on housing loans for purchasers who are individuals and non-individuals respectively.
The MAS proposes to require FIs to comply with regulatory LTV limits on MWLs that are secured on residential property, but not used for the purchase of the residential property. These limits will be set at the same level as the current regulatory LTV limits on housing loans granted for the purchase of residential properties.
Hence, where the borrower(s) are individuals, a MWL on a residential property, together with the outstanding balance of any credit facilities secured on that property, will be subject to an LTV limit of 80% if the borrower has no outstanding credit facility for the purchase of another property, or 60%, if the borrower has any outstanding credit facilities for the purchase of another property.
Where one or more of the borrowers are not individuals, a MWL on a residential property, together with the outstanding balance of any credit facilities secured on that property, will be subject to an LTV limit of 50%. The consultation paper provides the following illustration:
“Assuming that the applicable LTV limit is 60%, with the borrower already having an outstanding housing loan of S$400,000 on a residential property valued at S$1 million, the maximum MWL he can obtain on that property is S$200,000 (60% LTV x S$1 million - outstanding housing loan of S$400,000).
Aggregation of loans for computation of LTV
The MAS proposes to clarify that, for the purpose of LTV computation, FIs must aggregate the borrower’s loans from moneylenders, if any, which are used to pay for the property purchase.
Bridging loans, are not required to be aggregated for LTV computation. This continues to be the case for bridging loans granted by FIs regulated by MAS and by moneylenders.
Submission of comments
The consultation remains open for the submission of comments until 14 February 2011.
Pending the finalisation of the proposals in the consultation paper, the MAS expects FIs to limit the grant of credit facilities secured over residential property to those that are in compliance with the policy intent expressed in the consultation paper.