Lower initial downpayment for young couples buying HDB flats. How will it affect you?

What happened?

The Housing Development Board (HDB) has announced an enhancement to the staggered downpayment scheme.

Young couples who are eligible for deferred income assessment will only need to pay a downpayment of 2.5% instead of 5% of the flat price.

If you are not aware, the HDB staggered downpayment scheme halves the initial deposit during the signing of the lease agreement for your flat.

For those who opted to take a HDB loan, for example, this meant a downpayment of 5% instead of 10%.

But HDB has now reduced this even further as part of their initiatives to support young couples, including students and NSFs.

As HDB explains, reducing the downpayment to 2.5% of the flat price will help to ease the initial cost that young couples have to pay when purchasing a flat.

This will take effect from the BTO sales exercise in June 2024 onwards.

What is the HDB staggered downpayment scheme?

Imagine you're buying a house. Usually, you'd need to pay a big chunk of money upfront, called the downpayment. 

But with the HDB Staggered Downpayment Scheme, you can split that big payment into smaller, more manageable parts.

Here's how it works.

Normally, when you buy a house, you have to pay a certain percentage of the house's price upfront as a downpayment. For HDB flats in Singapore, this can up to 25% if you are taking a bank loan for your HDB purchase. 

The Staggered Downpayment Scheme lets you pay it bit by bit over time instead of paying the full downpayment when you sign the papers to buy the house

This scheme is mainly for young couples who are first-time applicants. It's a way to help people who might not have a lot of savings to still be able to afford a home.

The main perk is obvious: it makes buying a house more affordable upfront. Instead of scraping together a huge amount of money, you can spread out the payments, making it easier to manage your finances.

How do you qualify for the HDB staggered downpayment scheme?

To qualify for the HDB staggered downpayment scheme, you must meet the following eligibility criteria:

• Both parties must be first-timer applicants, or a couple comprising a first-timer and a second-timer applicant
• You have successfully booked a new flat through a HDB sales launch
• The application has to be made no later than the younger applicant’s 30th birthday

What are the changes to the HDB staggered downpayment scheme?

If you and your partner qualify for the staggered downpayment scheme, then you both can benefit from the reduced initial downpayment of 2.5% during the signing of lease.

The remaining amount will then be payable at key collection when you take up a housing loan and receive the Enhanced Housing Grant (EHG), if eligible.

Note that the downpayment during both the signing of lease and key collection can be paid in either CPF or cash.

For a full breakdown of the changes, you may refer to the table below.

How will the changes in downpayment scheme affect you?

If you are purchasing a 4-room BTO flat for the price of $500,000, the initial downpayment during the signing of lease would now be reduced from $25,000 to $12,500.

This frees up an extra $12,500 which may seem insignificant at first glance.

After all, it won’t even be enough to purchase The Wildest Dreams Package at Marina Bay Sands ($50,000) which includes four VIP tickets to Taylor Swift’s Eras Tour concert along with other perks.

So is it true that there is not much difference and HDB is merely shifting the figure payable to a later date?

Not quite, owing to the time value of money.

The time value of money is a concept that explains how money in the present is worth more than the same sum of money to be received in the future.

This is because money you have on hand right now can work hard for you and generate a potential return too.

The following are some illustrative examples.

If you are using your CPF savings to make the flat purchase, the $12,500 would grow to S$13,461 after 3 years, based on the prevailing interest rate on the CPF ordinary account of 2.5% per annum. 

In other words, you would have earned an interest income of S$961 over this period.

If you put the S$12,500 into a high-yield savings account that gives you an interest rate of 4% per year, the original amount would increase to $14,061 after three years.

In other words, you would have earned an interest income of $1,561 over this period.

If you are looking at options to make your savings work harder, you can check out our compare yield tool to find out the yield offered by different instruments.

What would Beansprout do?

The Staggered Downpayment Scheme a friendlier way to buy a house in Singapore. 

It gives you a little breathing room by spreading out the big upfront costs, making homeownership a bit less daunting.

If you have excess savings to after paying for the HDB downpayment (lucky you!), then it might be worthwhile thinking about how we can make the savings work harder. 

In the words of Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”.

To find out more about which savings accounts allow you to earn the highest interest rates, check out our guide to the best savings accounts with the highest interest rate.

With the need for making the remaining payment on key collection, we can also explore relatively low risk options that allow us to earn a potentially higher yield, such as T-bills, cash management accounts and fixed deposits. 

If you are looking to start investing, we share how a regular savings plan (RSP) can help us to get to our financial goals in a simple way. 

For aspiring homeowners who would like to find out more about the BTO application process, read our comprehensive guide to buying a BTO flat.

If you are eyeing the upcoming June HDB BTO, make sure your familiarise yourself with the HFE letter application. 

If you have yet to decide between a HDB loan or a home loan, check out our comparison here.