9 April 2020
On 7 April 2020, the Monetary Authority of Singapore (“MAS”) issued a media release clarifying the application of the loan-to-value (“LTV”) limits and total debt servicing ratio (“TDSR”) for residential mortgages and mortgage equity withdrawal loans (“MWLs”). The TDSR framework requires financial institutions to factor in the borrower’s other outstanding debt obligations when granting property loans.
MAS’ clarification follows the announcement on 31 March 2020 by MAS and the financial industry of a package of measures to help ease the financial strain on individuals and small and medium-sized enterprises (“SMEs”) caused by the Covid-19 pandemic, especially those facing temporary cash flow difficulties. Among other things, SMEs may opt to defer principal payments on their secured term loans up to 31 December 2020, subject to banks’ and finance companies’ assessment of the quality of the SMEs’ security. Individuals with residential property loans may apply to their bank or finance company to defer either (i) principal payment or (ii) both principal and interest payments up to 31 December 2020. For more information about these measures, please see our article titled “MAS and financial industry announce measures to support individuals and SMEs affected by Covid-19 pandemic”.
For business owners and SMEs
MAS has provided the following clarification for business owners and SMEs (firms or sole proprietors with an annual sales turnover of up to S$100 million or employment size of up to 200 workers):
- SME borrowers are not subject to TDSR if they qualify for payment deferments on their secured property loans.
- Businesses, including corporations, limited liability partnerships and partnerships, that take up MWLs secured on residential or non-residential properties are not subject to TDSR and LTV limits. This is provided under MAS’ current rules to facilitate the provision of credit to businesses, some of which may rely on MWLs to finance their operations.
For individuals (including sole proprietors)
MAS provided the following clarification for individuals, including sole proprietors:
- The TDSR will not apply to:
- deferment of mortgage repayments (for residential, commercial, or industrial properties);
- refinancing of owner-occupied residential mortgages;
- MWLs if the LTV ratio does not exceed 50%; and
- unsecured credit facilities such as credit cards and personal loans.
- Borrowers are not subject to TDSR when they apply to defer either their principal payment or both principal and interest payments for their residential mortgages. This relief, announced by MAS on 31 March 2020, applies to residential property purchase loans and MWLs, including those under Debt Reduction Plans, and extends to both owner-occupied (HDB and private) and investment properties. Interest will accrue only on the deferred principal amount.
- Most major retail banks have extended payment deferments to individuals with commercial or industrial property loans as well. Like in the case of residential mortgages, these borrowers are not subject to TDSR when they defer their repayments.
- Borrowers who refinance their loans for owner-occupied residential properties are not subject to TDSR and LTV limits. This will help borrowers with fixed rate mortgage packages that are out of the lock-in period who want to refinance their loans to obtain a lower interest rate.
- Borrowers who take up MWLs secured on their existing private residential or non-residential properties are not subject to TDSR if the LTV ratio does not exceed 50%. This adjustment was introduced in March 2017 and is intended to help individuals monetise equity in properties that they already own.
- Borrowers are not subject to TDSR requirements when they take up unsecured credit facilities, such as personal loans and credit cards. However, borrowers are subject minimum income requirements for such facilities, and MAS has also put in place measures such as the industry-wide borrowing limit to promote financial prudence and avoid excessive debt.
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