Knowledge Highlights 8 May 2020

On 30 April 2020, the Monetary Authority of Singapore (“MAS”), the Association of Banks in Singapore (ABS) and the Finance Houses Association of Singapore (FHAS) announced a second package of measures to support individuals facing financial difficulties due to the Covid-19 pandemic (“Announcement”). Following the Announcement, relevant subsidiary legislation and MAS Notices have been amended to reflect the measures.

This second package will extend the scope of relief for individuals to other types of loan commitments. Such relief includes deferring repayments for commercial and industrial property loans and mortgage equity withdrawal loans. Loan tenure for Debt Consolidation Plans (“DCPs”) will be extended. Individuals will also be able to refinance investment property loans without being subject to the total debt servicing ratio (“TDSR”) and mortgage servicing ratio (“MSR”). The measures will also allow individuals to continue to have access to affordable basic banking services with the waiver of fall-below service fees and failed GIRO deduction charges for retail bank accounts.

The first industry support package was announced on 31 March 2020 by MAS and the financial industry to help individuals and businesses affected by the Covid-19 pandemic. This included relief measures for mortgages and unsecured revolving credit facilities, which make up a significant portion of individuals’ debt obligations.

Following the second package of measures announced by MAS on 30 April 2020, we have updated our infographic on “Covid-19 financial support measures for financial institutions, SMEs and individuals” which provides a summary of these measures and their key features.

Overview of measures

The latest package of measures will provide further support to affected individuals in light of the challenging economic outlook and continued uncertainty over the depth and duration of the downturn caused by the Covid-19 pandemic. The new measures are summarised below:

Objectives

Relief measures

Ease cashflow

  • Defer repayment for:
    • Commercial and industrial property loans
    • Mortgage equity withdrawal loans
    • Renovation and student loans
    • Motor vehicle loans and hire-purchase agreements, subject to assessment
  • Extend loan tenure for DCPs

Reduce debt

  • Refinance investment property loans, without being subject to TDSR and MSR

Ensure access to basic banking services

  • Waive fall-below service fees and failed GIRO deduction charges for retail bank accounts


Similar to the first industry support package, this second set of relief measures for individuals will be provided by financial institutions on an opt-in basis, as each individual’s financial situation is different. The Announcement cautions that as payment deferments and loan tenure extensions will result in higher overall interest costs, individuals should carefully consider the accumulated interest costs they will eventually have to bear, and balance this against their need for temporary cashflow relief.

Individuals do not need to demonstrate the impact from Covid-19 to obtain these reliefs, and their credit scores will not be affected when they take up payment deferments. Individuals can also opt to extend the loan tenure by up to the corresponding deferment period to ease monthly instalments when regular repayments resume.

Individuals may begin applications for these relief measures from 6 May 2020, except for the loan tenure extensions for DCPs which will be open for applications from 18 May 2020.

The Announcement states that while financial institutions aim to process all applications promptly, a high volume of applications could lead to some delays.

1.  Ease cashflow: Defer repayment of stipulated loans and extend loan tenure for DCPs

Defer repayment of commercial and industrial property loans

Individuals with commercial and industrial property loans may apply to their respective bank or finance company to defer principal payments up to 31 December 2020. Lenders will approve the request for deferment as long as the individuals’ loan repayments were current as at 1 February 2020.

Defer repayment of new mortgage equity withdrawal loans

Individuals with mortgage equity withdrawal loans that are granted on or after 6 April 2020 may apply to their respective bank or finance company to defer either (i) principal payment or (ii) both principal and interest payments up to 31 December 2020. For deferment of both principal and interest payments, interest will accrue only on the deferred principal amount, i.e. no interest will be charged on the deferred interest payments.

This measure will help individuals, including sole proprietors, facing temporary cashflow issues to monetise the equity in their existing properties to meet business expenses and family needs, and have the flexibility to make repayments at a later date. This measure supplements the residential mortgage relief measure announced on 31 March 2020 as well as the above relief measure for commercial and industrial property loans. With this additional measure, borrowers can apply for payment deferments on their mortgage equity withdrawal loans, regardless of when the loans were granted.

Defer repayment of renovation and student loans

Individuals with renovation or non-Ministry of Education student loans may apply to their respective bank to defer both principal and interest payments up to 31 December 2020. Interest will accrue only on the principal amount, i.e. no interest will be charged on the deferred interest payments.

Defer repayment of motor vehicle loans and hire-purchase agreements, subject to assessment

Individuals with motor vehicle loans and hire-purchase agreements who are affected by Covid-19 and are in need of payment deferment can approach their respective bank or finance company to discuss suitable repayment plans on a case-by-case basis.

The bank or finance company in its assessment will take into account factors such as the individual’s financial situation, need for the use of a motor vehicle, the current market value of the motor vehicle and its estimated market value after the deferment period (if applicable).

If a payment deferment is granted, individuals can discuss with their bank or finance company on extending the loan tenure by up to the corresponding deferment period. This will ease individuals’ monthly instalments when regular repayments resume.

Extend loan tenure of DCPs

Eligible individuals on DCPs who are affected by Covid-19 may apply to their respective bank to extend the loan tenure of their existing DCPs for up to five years. This will help lower their monthly instalment repayments.

2.  Reduce debt obligations: Remove TDSR and MSR requirements for refinancing and repricing of investment property loans

Individuals with investment property loans can apply to refinance or reprice their loans, without being subject to TDSR and MSR. Consequently, individuals who do not meet TDSR and MSR will not need to commit to a debt repayment plan to repay 3% of their outstanding loan amount over three years. Individuals will need to consider the contractual penalties involved if they refinance or reprice their loans within the lock-in period.

Individuals can rely on this exemption to refinance or reprice their loans to lower their interest costs and debt obligations during this period. Any subsequent applications to defer mortgage repayments for refinanced or repriced loans will be assessed by their bank or finance company on a case-by-case basis.

3.  Ensure access to basic banking services: Waiver of certain bank fees

Individuals whose incomes are impacted by Covid-19 and are not able to meet the relevant minimum average daily or monthly balances for their retail bank accounts can apply to have fall-below service fees waived up to 31 December 2020.

Similarly, those impacted by Covid-19 and who have set up GIRO arrangements for automated payment deductions (e.g. insurance premium and electricity/phone bill payments) from their retail bank accounts can apply to have bank fees waived for any failed deductions up to 31 December 2020. The Announcement states that this measure does not affect any action that payee companies may take for failed payments, including late payment fees, if applicable.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg and Singapore Statutes Online website sso.agc.gov.sg:

For banks

 For merchant banks

For finance companies

For insurers and direct insurers

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.

 

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