In an effort to cool down the heated real estate market of the country, the government of Singapore has introduced a new set of rules and benchmarks for banks for granting a home loan to an individual.
The Monetary Authority of Singapore (MAS) aims to prevent buyers from taking up a second home loan or loans for multiple property purchases.
The new rules require financial institutions to consider the borrower's debt with the loan servicing ratio not exceeding 60 percent. This means banks are now discouraged from giving loans to those individuals who use up 60 percent of their income to pay a loan. These rules would apply to all kinds of property related mortgages and its refinancing.
Banks will also have to consider the monthly repayment scheme that the individual is applying for. Their outstanding debts must also be considered. Additionally, a medium-term interest rate will also be applied on the borrowed amount. However, if the rates prevailing in the markets are higher, that will be charged on the amount borrowed, reports Channel News Asia.
Apparently, loans that don't adhere to these rules would be rendered "imprudent". However in case of exceptions, the banks can exercise their discretion.
The new measures come just months after the government introduced extra stamp duties for foreign investors on development of condos with a maximum floor size of 500 square feet area in suburban areas of Singapore. The rates of down payments were also increased. Taxes for luxury homeowners were also upped.
Earlier in June, home loan interest rates went up 0.17 percent in the Island country. Rates have been rising marginally over the previous few months. Though the increase has been small, fears of rates shooting up to record highs have captured the market.
According to a feature on Xinhuanet.com:
Alfred Chia, chief executive of financial advisory firm SingCapital, which specializes in mortgage refinancing, said average premiums went up from 0.7 percent in January to around 0. 85 percent last month. The biggest jump he saw was by more than 0. 4 percentage point.
A 0.4 percentage point jump means that monthly instalments for a 1 million Singapore dollars loan (800,000 U.S. dollars) on a 20- year tenure could rise by 185 Singapore dollars, from about 4,635 Singapore dollars to nearly 4,820 Singapore dollars, assuming a constant three-month SIBOR (Singapore interbank offered rate) of 0. 38 percent, and a premium initially set at 0.7 percent.
Singapore is currently the second-most expensive real estate market of Asia, Hong Kong being the first. Due to the increase in the number of high-net-worth individuals in the country, the residential market has become one of the most high-priced sectors of the island. The government has been trying to cool the sector down since 2009. The latest measures are the administration's seventh attempt at curbing inflation in the market, reports Bloomberg.
