MAS Total Debt Servicing Ratio (TDSR) Framework

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Well, it is not exactly what I had written about MSR here and here. Anyway, this is a news which most property agents have been expecting for some time.

Some points extracted from the MAS website (I had taken the liberty to bold points which I find to be more important):

The TDSR will apply to loans for the purchase of all types of property, loans secured on property, and the re-financing of all such loans.

The methodology for computing the TDSR will be standardised. FIs will be required to:

  • take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower;
  • apply a specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR;5
  • apply a haircut of at least 30% to all variable income (e.g. bonuses) and rental income; and
  • apply haircuts to and amortise the value of any eligible financial assets taken into consideration in assessing the borrower’s debt servicing ability, in order to convert them into ‘income streams’ in computing the TDSR.

 

For the medium rate, it seems to be 3.5% for housing loans and 4.5% for non-residential property loans. I have clients who are worried about future increases in interest rate and if they are able to service the loans. From the Singapore Accredited Mortgage Planner (SAMP) course which I had taken as part of my constant upgrading, it is always wise to take a stress test on the interest rate going up. Now, I know exactly the figure to apply!

 

MAS will refine certain rules related to the application of the existing LTV limits on housing loans granted by FIs. In particular, MAS will require:

  • borrowers named on a property loan to be the mortgagors of the residential property for which the loan is taken;
  • “guarantors” who are standing guarantee for borrowers otherwise assessed by the FI at the point of application for the housing loan not to meet the TDSR threshold for a property loan to be brought in as co-borrowers; and
  • in the case of joint borrowers, that FIs use the income-weighted average age of borrowers when applying the rules on loan tenure.

 

All borrowers will have to be owners (this will hurt investors real bad) and guarantors will have to be co-borrowers if TDSR ratio is exceeded.

 

Perhaps this chill wind can keep the haze away…

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