What the latest property cooling measures mean for Singapore property owners

What happened?

The Singapore property market has remained red hot even with a slowing global economy and sharply rising interest rates. 

Private residential prices in Singapore rose by 3.5% in the second quarter of 2022, accelerating from a 0.7% increase in the first quarter of the year. 

To moderate demand and ensure that home buyers will be able to meet their mortgage obligations, the government has announced a latest set of cooling measures.

• MAS will raise by 0.5%-point the medium-term interest rate floor used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).
• For housing loans granted by HDB, HDB will introduce an interest rate floor of 3% for computing the eligible loan amount. 
• The Loan-to-Value (LTV) limit for HDB housing loans will be reduced from 85% to 80%.
• There will be a wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs to buy a non-subsidised HDB resale flat. (except for seniors aged 55 and above)

Let’s take a look at the latest set of property cooling measures announced by MAS, MND and HDB to understand how it might affect you as a home buyer. 

#1 – Eligible loan amount to be calculated based on higher medium-term interest rate floor

As interest rates have gone up and are expected to increase further, the maximum loan quantum limits for housing loans will be tightened.

This is intended to ensure prudent borrowing and avoid future difficulties in servicing home loans. 

When evaluating borrowers’ repayment ability, a higher interest rate assumption will now be used. 

• For property loans granted by private financial institutions, MAS will raise the medium-term interest rate floor used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) by 0.5 percentage point from 3.5% per annum to 4% per annum
• For housing loans granted by HDB, HDB will introduce an interest rate floor of 3% for computing the eligible loan amount.

#2 – Lower loan-to-value limit for HDB housing loans

The Loan-to-Value (LTV) limit for HDB housing loans will be reduced from 85% to 80%.

This means that the total loan amount for HDB housing loans will be reduced. For a HDB purchase of S$500,000 the maximum loan amount will be reduced to S$400,000 from S$425,000. 

The lower LTV limit will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after 30 September 2022.

#3 - Wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs to buy a non-subsidised HDB resale flat

To moderate demand for HDB resale flats and slow down the upward momentum in HDB resale prices, a wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs to buy a non-subsidised HDB resale flat will be introduced. 

This is a temporary measure which will be reviewed in future depending on overall market conditions and housing demand.

The wait-out period will not apply to seniors aged 55 and above who are moving from their private property to a 4-room or smaller resale flat. 

The objective of this measure is to ensure that resale flats remain affordable for flat buyers, especially for first-timers.

This is especially so as the HDB Resale Price Index has increased by more than 5% as at end-2Q 2022 despite a set of cooling measures announced in December 2021. 

What would Beansprout do?

Following the US Federal Reserve aggressive rate hike, we shared a few ways that Singaporeans can cope with the higher interest rates.

One of the things we suggested considering is to take on a HDB loan rather than a bank loan if you are trying to bring down your monthly mortage payments. 

After all, our monthly mortgage payments are probably one of the largest expenses to think about. 

The good news from this set of measures is that there is no change to the actual interest rate charged for housing loans provided by HDB. It will remain at 2.6% p.a. from 1 October to 31 December 2022.

The HDB concessionary interest rate is reviewed quarterly, and will continue to be pegged at 0.1%-point above the prevailing CPF OA interest rate. Find out more about how the CPF OA interest rate is calculated here

While some home buyers may need to adjust their intended property loans with the latest set of measures, it may actually be prudent to do so now to ensure that you would be able to meet your mortgage payments when interest rate rise.