Tighter borrowing limits in line with weakening risk appetite among banks
Tighter borrowing limits in line with weakening risk appetite among banks. According to mortgage brokers, the government’s decision to limit the amount of money home purchasers can borrow is prompted mostly by banks’ diminishing risk appetite.
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 made on or after September 30. This is intended to ensure sensible borrowing as interest rates rise, according to a joint statement made late Thursday by the Housing and Development Board, the Ministry of National Development, and the Monetary Authority of Singapore (MAS) (Sep 29).
The adjustment restricts the maximum amount that purchasers can borrow, but Clive Chng, an associate director at Redbrick Mortgage Advisory, believes banks would have expected higher interest rates anyway by raising internal stress test rates. “When interest rates rise,” Chng noted, “banks can raise the stress test interest rate if they consider it is essential.” He claimed that banks had previously indicated that they would raise interest rates if they continued to climb.
According to Wayne Quek, senior mortgage advisor at Home Loan Whiz, banks have indicated 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 limits are unlikely to have an immediate impact on mortgage rates. According to Darren Goh, executive director of MortgageWise.sg, the new regulations would raise the floor to 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 the time being, but also ensure that buyers consider future essential components at the stage of sign-up,” Goh said. According to Goh, 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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