Private residential property owners will be given a 15-month period to purchase a non-subsidised HDB resale flat

The government has unveiled an additional collection of property cooling measures, in which it aims to secure an prudent borrowing strategy in the face of rising prices of market rates. The latest collection of cooling measures attempts to reduce demand within the Housing & Development Board (HDB) sale market, in order to make sure that HDB flats that are resold remain affordable.

The new rules will go into effect on September 30.

The measures were issued in conjunction by HDB, The Monetary Authority of Singapore (MAS) and HDB, the Ministry of National Development (MND) and HDB in the early morning hours of September 29. The most recent series of cooling measures was announced just one year ago, on December 16, 2021.

Terra Hill enbloc acquired Terra Hill Condo for S$371 million ($276.1 million) through a joint venture.

The higher interest rate floor

In the context of these methods, MAS will assume higher interest rates when assessing the borrower ability to repay. The change reflects the increased interest rates that are anticipated in the medium-term in comparison to the period that was “exceptionally affordable rates” between 2013 and 2021.

The process will take place via two methods. For property loans provided from private banks MAS will increase the mid-term interest rate floor which is used to calculate the total debt service ratio (TDSR) and mortgage servicing ratio (MSR) by 0.5 percentage points.

This means that residential property purchase loans as well as loan equity from mortgages will have a mid-term interest rate ceiling at 4% per year (p.a.) in comparison to 3.5% previously, or the interest rate after.

The rates applicable to the non-residential property purchase loans as well as loan to withdraw mortgage equity have been increased up to 5% p.a. up from 4.5% previously.

This applies on loans to property purchase where there is an opportunity to purchase (OTP) has been granted after September 30. If there’s no OTP it will be applied to all sale and purchase agreements (SPA) which are executed at or after Sept. 30.

In the meantime, HDB will introduce an interest rate ceiling of 3% to calculate the acceptable amount of a loan for HDB home loans.

The floor on interest rates will apply to applicants in HDB’s Credit Eligibility (HLE) notice at or after September 30. According to HDB it does not impact the actual HDB discounted interest rate which will remain the same with 2.6% p.a. between Oct. 1 and Dec. 31.

“The new rates for the medium-term will ensure that homeowners borrow with caution to fund the purpose of property purchase in the high rates of interest,” reads the joint statement. “This is essential since property loan commitments are for the long term that can be the household’s biggest debt. Certain borrowers might need to adjust their plans for property loans but they’ll be better able to repay these loans in the event that the interest rates increase.”

Lower LTV limit

In addition the government will also reduce the maximum loan-to-value (LTV) amount for HDB mortgages by 80% instead of 85% before. Lower LTV limit will be applicable to flat-new applications as well as applications for resales after Sept . 30.

As per MAS, MND and HDB the new rules are not likely to affect those who are first-time homebuyers and low-income buyers because of the “significant home loans”.

The updated LTV limit is not applicable to loans made by financial institutions that are private where the LTV limit is still 75%.

Additionally, a 15-month waiting period will be set on private residential property owners and previous homeowners of residential private properties to purchase a subsidised HDB flat to satisfy low demand on the HDB marketplace for resales. The wait-out period won’t be applicable to those aged 55 years or older who have moved to a smaller or four-room flat that is being resold. This policy is said to be temporary that will be reviewed in the future, based on housing market and the conditions.