HDB Just Announced New Cooling Measures With Stricter Borrowing & Loan Criteria From 30 Sep 2022

30 September 2022 | BY

The latest property cooling measures were just announced last night, without any prior notice.

Just last night when most of us would have already been sound asleep or ready to go to bed, the government unveiled a new set of cooling measures meant to control escalating prices in the property market. The changes are set to be effective as of 30th September 2022 which, given that the news was released late into the night of 29th September, would more or less mean an immediate implementation.

Here’s what you need to know about the latest measures, and how you may or may not be affected.

Lower loan-to-value limit for HDB loans

Image credit: Unsplash

One of the most notable changes is the lowering of the Loan-To-Value (LTV) limit of HDB loans.

In case you’re unfamiliar, the LTV limit is basically how much you can borrow (either from HDB or bank) for a housing loan, and conversely, how much you’ll have to pay upfront, either through cash or CPF. 

It takes into account your property purchase price, and how much you can borrow is based on a prevailing percentage, which was 85% for HDB loans and 75% for bank loans. So for example, if your BTO costs $400,000, the previous LTV limit of 85% meant that you could borrow up to $340,000 from HDB, while having to cough up the remaining $60,000 in cash or CPF.

Under the new cooling measures, the LTV limit for HDB loans will be lowered from 85% to 80%, while there’s no change to the existing 75% for bank loans. According to the government, This will apply to “new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after 30 September 2022”.

Tighter loan criteria

The next set of changes involves peoples’ ability to service any loans they take out for properties, otherwise known as the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).

To calculate this, a simple formula would be to take all your debt obligations (e.g. property loan, car loan, etc.) divided by your gross monthly income and multiply that by 100%. In principle, the TDSR is meant to ensure that people can afford the property they are intending to purchase, rather than being too ambitious in taking out loans and then placing unnecessarily stress on their finances. 

According to the MND, this is to ensure people will “exercise prudence before taking up any new loans, and be sure of their debt-servicing ability before making long-term financial commitments”, in light of current market conditions.

For property loans from banks, there will be a 0.5 increase when computing a buyer’s TDSR and MSR. This is up from the current 3.5% for residential properties and 4.5% for non-residential properties, and applicable for all purchases where either the Option to Purchase (OTP) or Sales & Purchase Agreement (S&P) is granted on or after today (30th September). Of course, the loan interest rates will be determined by the bank that you’re borrowing from.

Image adapted from: MND

As for loans from the HDB, there will be an introduction of 3% in determining the eligible loan amount. This will be applicable for all purchases where the HDB Loan Eligibility (HLE) letter is received on or after today as well. This will also not affect the existing HDB loans interest rate, which has been 2.6% for over twenty years now.

New wait-out period

A new measure introduced is a 15-month wait-out period for private property owners who are looking to or have already sold their property and want to purchase a resale flat. This is a significant increase from the current rules, where these owners were allowed to buy a resale flat only if they sold off their existing private property within 6 months of their resale flat purchase

That being said, this measure will not apply for seniors aged 55 and above who wish to downgrade from their existing private property to a 4-room or smaller resale flat.

Why the measures now?

With that all being said, why would these new set of measures be introduced now, and so suddenly?

Ever since the last set of cooling measures were introduced in late 2021, it’s no surprise that the property prices have been escalating, and many fear that it might become unsustainable if not controlled somehow. The HDB Resale Price Index has gone up by more than 5% since, and in the past year we’ve seen some really crazy prices in the resale market, including quite a number of million-dollar resale HDBs, which was almost unheard of especially in estates like Woodlands, Pasir Ris and Punggol.

In addition, the world is facing inflation at an almost unprecedented level, leading to bank interest rates soaring in recent months. Of course, this also has an impact on people’s finances, not just for property purchases but spending in general. And so, these measures are meant to ensure that Singapore’s property market will still be sustainable and affordable for Singaporeans.

Another interesting aspect to consider is the timing of which these measures were introduced. Rather than set out an effective date, these measures are effectively immediate, without prior warning from the government. This is so that the market won’t react in a rush to complete as many transactions as possible before implementation, which may cause problems such as people diving into property purchases in desperation and without careful assessment of their finances.

So how will the changes affect you?

If you’re a current HDB homeowner, these changes won’t affect you. Similarly, if you own a private property (e.g. landed property or condo), if you’re not intending to sell your home anytime soon then this won’t affect you either.

If you’re looking to purchase a new property in the immediate future, then this will affect you by a fair bit. In particular, if you’re looking to take out a HDB loan, you’ll have to cough up an additional 5% of your property price upfront, as compared to previous times. 

Depending on what property you’re intending to buy, you’ll have to carefully assess your TDSR and if you can adequately service your loan, else you may have to lower your expectations and go for a cheaper property instead.

Given that resale prices have shot up considerably in the last year, hopefully these measures will be able to cool the market somewhat. In the meantime, we can only wait and see how the market will react to these changes.

Cover image adapted from:  TheSmartLocal, Unsplash

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