On 5 October 2012, the Monetary Authority of Singapore (MAS) announced the following restrictions which apply to both private
- properties and HDB flats and which took effect from 6 October 2012:-the maximum tenure of all new residential property loans (whether purchase loans or for refinancing) will be capped at 35 years.
- loans to be granted by financial institutions for the purchase of residential properties (Housing Loans) which exceed a tenure of 30 years or which extend beyond the borrower’s age of 65 will face significantly tighter loan-to-value (LTV) limits.
- the LTV for Housing Loans to non-individual borrowers has been lowered from 50% to 40%.
- the previous exclusion of the MAS Notice 632 (Notice) to Housing Loans granted by financial institutions to its employees for their own occupation has been removed.
These rules will apply to new Housing Loans, or loans used to refinance existing Housing Loans granted to individual and non-individual borrowers, by financial institutions regulated by MAS.
In the case of new Housing Loans, the rules will apply if the date when the option to purchase was granted or, where there is no option to purchase, the date of the sale and purchase agreement, falls on or after 6 October 2012.
For re-financing facilities, the rules will apply where the application date of such facilities falls on or after 6 October 2012.
New rules on loan tenure
These new MAS rules impose an absolute limit of 35 years on the tenure of all Housing Loans. This will apply to loans to both individual and nonindividual borrowers, as well as to refinancing loans, from 6 October 2012.
For the purpose of computing the limit of 35 years, in a case where the borrower applies for a refinancing facility in respect of any balance outstanding under an existing Housing Loan, the sum of (i) the tenure of the refinanced facility and (ii) the period between the first disbursement of the borrower’s first Housing Loan for the purchase of that residential property and the first disbursement of the refinanced facility cannot exceed 35 years.
With effect from 14 January 2011, the LTV limit on loans taken for the purchase of residential properties was as follows:-
- remained at 80% if the individual borrowers do not have any other outstanding credit facility from HDB or from any financial institution regulated by the MAS for the purchase of another residential property or who can show evidence that they have disposed their existing residential property/properties when they acquire the new property;
- reduced to 60% for individual borrowers who have one or more outstanding credit facility from HDB or from any financial Institution regulated by the MAS for the purchase of another residential property at the time of applying for a housing loan for the new residential property acquisition; andr
- educed to 50% for all borrowers who are not individuals (such as corporations, trust and collective investment schemes, among others).1
With effect from 27 July 2011, LTV limits were introduced to apply to loans which are not taken for the purchase of residential properties, but which are otherwise secured by residential properties.
Under the new rules, MAS has lowered the LTV for Housing Loans to borrowers who are individuals, if:
- the tenure exceeds 30 years; or
- the loan period extends beyond the retirement age of 65 years.
For these loans, the LTV limit will be:
- 40% for a borrower with one or more outstanding Housing Loans (may be either a loan from HDB or a financial institution regulated by MAS); and
- 60% for a borrower with no other outstanding Housing Loans.
MAS also lowered the LTV ratio for residential property loans to nonindividual borrowers from 50% to 40% irrespective of the tenure of the loan.
Paragraph 17(u) of the Notice provides that where a credit facility is granted to joint borrowers, in determining the LTV limit applicable to the joint borrowers, the reference to “Borrower” shall be read to also refer to each Borrower. As such, in the case where there is more than one borrower and their ages differ, the ages of all the borrowers will have to be considered and the retirement age of the oldest borrower will have to be considered.
However, one issue which still has not been addressed by the recent amendments to the Notice is its applicability to purchasers of residential properties who are not borrowers of the loan. For example, in determining the retirement age of the borrower, would a financial institution have to consider the age of the purchasers who are not the borrowers? It is this writer’s view that financial institutions should consider the application of the Notice to these third party purchasers; otherwise, it may be an avenue for borrowers to circumvent the rules set out in the Notice, which would then be against the intention and spirit of the Notice. These third party mortgagors are ultimately liable to the financial institutions for the outstanding loan jointly with the borrowers, and it is only prudent that the limits should apply to them as well.
The new rules which came into effect on 5 October 2012 do not extend to loans which are not taken for the purchase of residential properties.