Tighter borrowing limits in line with weakening risk appetite among banks
Tighter borrowing limits in line with weakening risk appetite among banks. The government’s motion to limit how much house purchasers may borrow is mainly in line with banks’ dwindling risk appetite, according to mortgage brokers.
The medium-term interest rate floor, which is used to calculate the total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR), will be hiked by half a percentage point for loans for the acquisition of properties on or after September 30. This is expected to ensure sensible borrowing when interest rates rise, according to a joint statement issued late Thursday by the Housing and Development Board, the Ministry of National Development, and the Monetary Authority of Singapore (MAS) (Sep 29).
The adjustment reduces the maximum amount that purchasers can borrow, but Clive Chng, an associate director at Redbrick Mortgage Advisory, believes banks would have planned to accommodate for rising interest rates by raising internal stress test rates anyway. “When interest rates rise, banks have the option to raise the stress test interest rate if they think it essential,” Chng explained. He stated that banks had already indicated that they would do so if interest rates continued to climb.
According to Wayne Quek, senior mortgage advisor at Home Loan Whiz, banks have stated that they will reduce the TDSR to 4% for refinancing even if the home was purchased before September 30. According to mortgage brokers polled by The Business Times, the new laws are unlikely to have an immediate influence on mortgage rates. Darren Goh, executive director of MortgageWise.sg, said he found it “strange and interesting” that the new measures would raise the floor to either 4 to 5% or the subsequent interest rate, whichever is higher.
The ultimate interest rate is the maximum potential interest rate that can be applied during the term of a property loan, excluding introductory or promotional rates. “MAS is actually quite cautious in ensuring that they not only set a higher rate for now, but also ensure that buyers take into account future crucial aspects at the point of sign-up,” Goh added. Goh noted that banks may need to reassess their spreads if Singapore Overnight Rate Average rates rise, causing their subsequent rates to surpass the 4-5 percent floor.
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