The recent Evergrande saga had send fear not only within China but also out of China. It also serve as a timely reminder to many the impact of over-leveraging. This incident does highlight the general inclination towards property buying. Buying a property has to be one of the biggest ticket item that most Singaporean would buy in their lifetime.
Thankfully in Singapore there are guidelines set in place by the authorities to ensure that we do not over-stretched our finances in the process of house buying. Apart from that, the objectives of the guidelines are also to strengthen credit underwriting standards of Financial Institutions so as to ensure the long term stability of the property market.
The few guidelines that we would be sharing for this article is Loan Tenure and Loan-to-Value (LTV).
The maximum loan tenure for housing loan is capped at 30 years for HDB flats and 35 years for non-HDB properties. This is to ensure that the borrower’s ability to repay the loan is well within their means and preferably does not extend beyond the borrower’s productive years where they have financial income. For would-be house buyer if a property purchase requires you to take on a housing loan that exceeds 30 years for HDB flats or 35 years for non-HDB properties, you could review your finances and see if you are able to fork out a higher down payment so that your housing loan is within the loan quantum and loan tenure. If you are having difficulties striking a balance in this aspect, chances are you are stretching your finances and might run into difficulties in the future by over-leveraging.
Loan-to-Value (LTV) limits help to ensure a borrower does not over-leverage by borrowing for few property with low down payment. For a borrower that has no outstanding housing loan, they have a LTV or 55% or 75% with minimum cash down payment of 10% or 5% respectively. For a borrower that have 1 outstanding loan, they have a LTV of 25% or 45% with minimum cash down payment of 25%. While a borrower that have 2 or more outstanding loan, they have a LTV of 15% or 35% with minimum cash down payment of 25%. If the loan tenure exceeds 30 years (or 25 years for HDB flats) and or the loan tenure extends beyond the borrower’s age of 65 years, the lower LTV will be applied in each of the qualifying situation. This helps ensure that the borrower that purchase more than 1 property for investment purposes do not over leverage and expose themselves to any unnecessary risk. The LTV limit is capped at 15% if the borrower is not an individual or a shell company.
There are few other guidelines that we will be sharing in the next article. While there are many financial decisions that we will have to make in our journey of life, you are not alone on this path. There will be people before us who have similar experience or peers who are currently walking this path unknown to us, as a matter of fact you are not alone and if you are feeling lost you could reach out to us for an enriching session as we have peeps who are in their 30s, 40s and 50s. One of us are either your peers and are on similar progress as you or have walked the path before and had accumulated their own experience.
Reference: https://www.mas.gov.sg/regulation/explainers/new-housing-loans/loan-tenure-and-loan-to-value-limits
Disclaimer: All information are for informational purposes only and should not be relied upon as financial advice.