Singapore Eases Refinancing Rule for Homeowners as Economy Cools

  • Move doesn’t represent easing of property cooling steps: MAS
  • Cap on debt servicing ratio was introduced by MAS in 2013

Singapore’s central bank is relaxing refinancing rules for some homeowners as the economy cools, making it easier for those struggling with their borrowings to roll over their mortgages.

Households who are refinancing their existing mortgages will be exempted from a 60 percent cap on their total debt-servicing ratio, even if they had observed it when making the purchase, the Monetary Authority of Singapore said in a statement Thursday. The exemption, which takes effect immediately, only applies to owner-occupiers, the MAS said. The so-called Total Debt Servicing Ratio framework was introduced in 2013.

“The MAS’s move to tweak TDSR for refinancing is a timely one so as to ensure the stability of the property market,” said Christine Li, director of research at Cushman & Wakefield in Singapore. “In view of the recent weaknesses in the oil and gas and financial services sectors, retrenchment and pay cuts could affect the home owners’ ability to refinance existing home loans.”

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 the TDSR framework, 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.

The MAS stressed that the latest move does not represent an easing of the property cooling measures.

“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.”

Economic Headwinds

Singapore is facing economic headwinds due to a regional slowdown led by China, and the recent slump in oil prices. The nation cut the top end of its 2016 growth forecast after gross domestic product expanded an annualized 0.3 percent in the second quarter, less than previously estimated. Last month, the local energy services company Swiber Holdings Ltd. defaulted on its bonds, sending tremors through Singapore’s oil and gas sector.

Previously, the mortgage refinancing exemption was only given for owner-occupied homes bought before the introduction of the TDSR framework in June 2013. New property loans will still be subject to the 60 percent rule, the MAS said.

For investment property loans, borrowers who bought the property after the threshold was introduced will also now be able to refinance, provided they commit to a debt reduction plan and fulfill a credit assessment with their financial institution, the central bank said. The MAS said borrowers need to stay prudent and reduce their debt burdens, as the current low interest rate environment will not persist indefinitely.

Singapore needs to tread carefully to avoid sending mixed signals on its intentions towards the property market, 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,” Seah said. “It may send the wrong signal to the public that they may want to unwind soon,” he added, referring to the property curbs.