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MAS Restricts Loan Tenure for Residential Properties

Just a couple of days after I wrote about Singapore’s increasing property prices and my expectation of more property cooling measures, the government has stepped in with some new measures.

Yesterday, MAS announced that there will be a limit to the maximum tenure of loans for the purchase of residential properties.

The maximum tenure of all new residential property loans will now be capped at 35 years.

In addition, loans exceeding 30 years tenure or having a loan period that extends beyond the retirement age of 65 years will also face significantly tighter loan-to-value (LTV) limits.

For these loans, the LTV limit will be:

  • 40% for a borrower with one or more outstanding residential property loans; and
  • 60% for a borrower with no outstanding residential property loan.

MAS will also lower the LTV ratio for residential property loans to non-individual borrowers from 50% to 40%.

The announced changes take place with effect from today.

While the changes might not seem like a “major earthquake”, it does help to remove some demand from the market by preventing people from over-extending themselves with a very long loan tenure.

Also, the bulk of property buyers who are cash rich tend to be people who are older. These people will now be forced to take a shorter duration loan if they do not want to be subjected to the more stringent LTV limits. This might put them in a position where the rental income becomes more than the monthly mortgage payments.

That becomes a major deterrent for this group of buyers as the days of getting a positive cashflow from a property purchase is effectively over. No more free lunch.

I actually quite like these new measures. It doesn’t really affect young married couples who are looking to buy their first property, but deters people from stretching themselves by buying multiple properties with heavy loans.

Hopefully, people on the fringe would be more careful about paying too much for a property.

Besides the loan tenure cap announced by MAS yesterday, there had actually been some other subtle changes recently to housing loans that most people might not know of.

MAS has reminded banks that the practice of giving loan subsidies is like giving a property discount and thus the final loan amount should be reduced accordingly. The type of subsidies would include legal subsidy, valuation subsidy and even free fire insurance.

Because of this “reminder”, most banks have removed their subsidies completely.

MAS announcement on loan tenure restriction (MAS website)

Banks in Singapore halting home loan subsidies (Yahoo finance)

Leave a Comment:

Clemence Tan says 7 years ago

Does that mean we need to get a younger wife??? preferably below age of 30 and remarried every 5 years. One stone kill 2 birds, this will help to increase birthrate too.

    Martin Lee says 7 years ago

    Dear Clemence,

    That will not work as both husband and wife will need to be the loan applicants.

Jack says 7 years ago

Hi Martin,
The 60% cash also applies if you borrow for more than 35 years or if you reach age of 65, whichever is lower?

    Martin Lee says 7 years ago

    Dear Jack,

    You can’t borrow more than 35 years.

    If you borrow more than 30 years, OR if the tenure of the loan exceeds the age of 65, you will be hit with the reduced LTV cap.

    Jack says 7 years ago

    Hi Martin,
    Sorry, phrased my question wrongly.
    I was trying to figure out if the cash down is 40% or 60% in the case where I borrow for say 30 years but I hit the age of 65 even before 30 years is up.
    I guess the answer is cash down is 40%, correct?

    Another ‘ridiculous” scenario – if I am now 80, can I take a loan of 30 years assuming the bank is willing to loan me?

      Martin Lee says 7 years ago

      Dear Jack,

      If your loan extends beyond the age of 65, you can borrow 60% if you have no other housing loans. However, if you already have a housing loan, then the maximum loan will be only 40%.

      Answer to your second question is yes.

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