Singapore is taking steps to tighten maximum housing loan limits after a jump in borrowing costs.

The city-state will raise the interest rate floor used to calculate the total debt servicing ratio and mortgage servicing ratio by half a percentage point for property purchased from Friday, according to a statement by the Monetary Authority of Singapore, Ministry of National Development and the Housing & Development Board. 

Banks and other private financial institutions will continue to determine the actual interest rate charged. When granting loans, financial institutions need to ensure total debt repayments and mortgage repayments don’t exceed a proportion of the borrower’s income and the latest change imposes a higher interest rate when making those calculations.

“Market interest rates have risen significantly. They are likely to increase further in future,” according to the statement. “The revised medium-term rate floors ensure that households borrow prudently for their property purchases in a higher interest rate environment.”

Borrowing costs in Singapore have surged alongside global interest rates, as the Federal Reserve and other central banks take aggressive steps to contain soaring inflation. The three-month compound average Singapore overnight rate -- used by banks to set interest rates for mortgages -- jumped to 1.9% this week, up from 0.2% at the start of the year.

For public housing, the government will introduce an interest rate floor to calculate eligible loans, and also lower the loan-to-value limit for HDB loans to 80%, from 85% previously.

The authorities will also introduce a temporary measure to cool demand by requiring private residential property owners and those who sold their private properties to wait 15 months before purchasing resale public housing units. The new rule won’t apply to those older than 55.

Source:
courtesy of BLOOMBERG

by Shiyin Chen

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