Government introduces stricter rules for public and private housing loans
In a bid to ensure prudent borrowing and moderate demand, the government has announced fresh measures tightening housing loan limits, including for public housing, which will take effect on Friday (Sep 30). These changes aim to cool the property market, which has seen an upward trend in housing prices.
The Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) will now use a higher medium-term interest rate floor—0.5 percentage points higher than before—when calculating eligible loan amounts for residential and non-residential properties. This new rate will apply to properties for which the Option to Purchase (OTP) is granted or the Sale and Purchase Agreement is signed on or after Sep 30, 2022. The rate floor will be applied to all property loans, not just home loans, although actual mortgage rates will still be determined by private financial institutions.
For public housing, the government will impose an interest rate floor of 3% when calculating the loan amount available to borrowers seeking Housing Development Board (HDB) loans. The Loan-to-Value (LTV) limit for HDB loans will also be reduced from 85% to 80%, applying to new flat applications and resale applications received after Sep 30, 2022.
To further cool the HDB resale market, where million-dollar flats are changing hands, a 15-month wait-out period will be introduced for private property owners and former private property owners wishing to purchase a non-subsidised HDB resale flat. Currently, these owners could buy such flats on the open market if they sold their private property within six months of the purchase. This option will no longer be allowed, though seniors aged 55 and above moving from private property to a 4-room or smaller resale flat will be exempt.
The Ministry of National Development (MND), HDB, and the Monetary Authority of Singapore (MAS) noted that these measures are temporary and will be reviewed based on market conditions. The government is responding to rising HDB resale prices, which have increased by more than 5% as of Q2 2022, and aims to keep resale flats affordable, particularly for first-time buyers.
In addition to tightening TDSR and LTV limits, HDB will also introduce a 3% interest rate floor for loans, effective from Sep 30, 2022. The floor, which is 0.5 percentage points above the prevailing CPF Ordinary Account interest rate, will affect new applications but will not impact the existing HDB loan concessionary interest rate, which remains at 2.6% per annum.
The authorities explained that these measures were necessary given rising market interest rates and the expectation that borrowing costs for home purchases will continue to climb. By tightening loan quantum limits, the government aims to ensure that households borrow responsibly, especially as property loans represent significant long-term financial commitments.
These new measures come after previous tightening in December 2021, which saw a rise in additional buyer’s stamp duty (ABSD) rates and stricter TDSR and LTV limits for HDB loans. While the property market cooled in the months following those measures, demand has since returned with higher levels of foreign buyers and increasing HDB resale prices. These new measures are expected to slow down the market once again, as buyers and developers adjust to the new landscape.
