Singapore Introduces More Flexibility to Debt Servicing Rule

  • More homeowners can refinance mortgages beyond current cap
  • Change isn’t relaxation of property cooling measures: MAS

Singapore’s central bank will allow more homeowners to refinance their mortgages without having to comply with a 60 percent cap on their total debt-servicing ratio, giving them additional flexibility in managing their loans.

Those who are refinancing their existing mortgages will be exempted from the requirement under the so-called Total Debt Servicing Ratio framework even if they had observed it when making the purchase, the Monetary Authority of Singapore said in a statement Thursday. That’s as long as they live in the property. 

Previously, the exemption was only given to refinancing of owner-occupied homes bought before the introduction of the framework. New property loans will still be subject to the 60 percent rule.

“This is in response to feedback from some borrowers who are unable to refinance their existing property loans owing to the application of the TDSR threshold of 60 percent,” the central bank said. “The refinements being introduced for refinancing of loans will enable borrowers to better manage their existing debts. They do not represent a relaxation of property market cooling measures.”

Singapore’s home prices and sales have eased since the government began introducing housing curbs in 2009 with some of the strictest measures implemented in 2013, including higher stamp duties on residential purchases and an increase in real estate taxes. The government has repeatedly signaled it’s not ready to ease the curbs anytime soon, even as economic growth slows and unemployment rises.

“They are trying to inject more flexibility into the existing rule,” which may have been seen by some as being too rigid, said Irvin Seah, a senior economist at DBS Group Holdings Ltd. in Singapore. “We have to be cautious in terms of how this new tweaking in the loan regulation will be perceived by the public. It may send the wrong signal to the public that they may want to unwind soon.”

For investment property loans, borrowers who bought the property after the threshold was introduced will also now be able to refinance if they commit to a debt reduction plan and fulfill their financial institution’s credit assessment, the central bank said.

“MAS reiterates the importance for borrowers to exercise prudence and reduce their debt burdens, as the current low interest rate environment will not persist indefinitely,” it said. “Borrowers will face higher mortgage repayments when interest rates rise.”

The revised rules will take immediate effect.

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