Just when property market picks up by a little notch, MAS introduced a new cooling measure by introducing debt servicing ratio framework. With effect from 29th of June 2013 (by tomorrow), the new rules will take effect to ensure that a property buyer’s monthly payments do not exceed 60 percent of his income.
This new TDSR (total debt servicing ratio) will apply to loans for the purchase of all types of property, loans secured and refinancing of all related property loans.
This is to encourage prudence on borrowing and refrain borrowers from overexposure to financial risk. Banks will also have to apply a specific medium-term interest rate, or prevailing market rate, whichever is higher, to the property loan that the borrower will be apply for.
This would definitely affect in particular for existing property owners who are seeking to purchase another property for investment, be it residential, commercial or industrial.
[block type=”alert”] You can read more about the framework from the official MAS website here.[/block]Will the new TDSR affect the existing mortgages?
No. As all your contracts are inked in and approved, this definitely will not affect your existing mortgages. I suppose what MAS worry about is the possibility of interest rate increasing that might put borrowers who neglect the ratio and is overweight on any type of mortgage loans.
In all honesty, TDSR of 60% has always been the norm, but just not followed through strictly. Now with the framework that is in place, I guess stringent checks with proper documentations are needed before loan gets approved. That might mean that loan approvals might take longer than your usual.
Personal Thoughts
As of current since the framework was just released, our banker friends were not briefed yet on how this would impact their existing and new clients as well. More updates on Monday as soon as more case scenarios are being melted out. Look out for the space here.
My hunch is that MCL Land J-Gateway’s outstanding performance of 738-units selling out today probably triggered this new cooling measure which probably was already in the pipeline.