TDSR tweaks to have limited impact on new property purchases

Policy easing still unlikely.

According to DBS, MAS has announced it has decided to broaden the existing exemption from the Total Debt Servicing Ratio (TDSR) threshold of 60% for refinancing of loans for owner occupied properties, following feedback from borrowers who have faced challenges refinancing owner occupied properties.

The following changes will take place with immediate effect.

DBS thinks these changes will have little impact on new purchases as the full weight of the TDSR evaluation will still be in place nor do we see this as an easing of policies implemented.

Here's more:

Rather, we believe these measures are put in place to prevent volatility in the physical property market if buyers are forced to sell their properties if unable to meet the 60% TDSR or afford the higher monthly mortgage payments when the initial promotional financing rates cease.

Whilst residential assets as a % of total household assets for Singapore resident household has come off slightly from 49.4% to 48.9% in 3Q13, on a LTV of the Singapore private residential property market as a whole basis, we are still at the peak of 39.5% as at 3Q13.

With consensus expectations of a 10-15% through the cycle drop in property values, this ratio could well spike up in excess of 40% at current total mortgage levels. In addition, based on a previous MAS statement, Singapore resident households have on the average a 40-50% debt service ratio and an earlier study indicated that 5-10% of borrowers have a monthly debt service ratio of >60% and a 3ppt hike in interest rates would push another 10- 15% of borrowers to exceed this ceiling.

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