Guess which groups of buyers are most impacted by Singapore MAS Debt Servicing Ratio

Two weeks have passed since the MAS Debt Servicing Ratio framework was announced. Immediately following that, there were much buzz over its impact by industry analysts while financial institutions (FIs) convened to interpret and roll out their implementation guidelines. It's much clearer now on how the MAS framework will be implemented so let's run through the impacted groups of property buyers.

Marginal buyers

While this framework by-and-large is not new, the more stringent and standardized guidelines ensured marginal buyers will be sidelined. They previously may shop around looking for FIs that may use lower medium-term interest rate or higher TDSR threshold. With a consistent methodology, these buyers need to save more to qualify for the purchase.

Parents buying with children or guarantors

These are the creative buyers who sought loopholes in the previous cooling measures. By using children or anyone younger as guarantors, they seeked higher LTV limits and longer loan tenures. The guarantors also stand to benefit as they were not deemed as having property loans, allowing them to borrow at higher LTV in the next purchase.

Now, guarantors must be treated as co-borrowers and effectively affect their next purchase. They will fall under the purview of the past cooling measures. However many potential pitfalls await those who have used this approach. What happen if they try to refinance? The next FI can no longer accept guarantors as-is.

Even if the guarantors are willing to be co-borrowers, what if their TDSR exceed the 60% ratio? What if the guarantors had purchased another property prior to refinancing? Can refinancing go ahead at its outstanding LTV? How about those who wanted to extend loan tenure? Many what-if scenarios to ponder upon. I think they could be limited to repricing and certainly hope they will receive attractive repricing rates.

Commissioned earners, self-employed and high-networth individuals (HNWIs)

30% haircut on variable income such as commission, bonus, allowance and rental income will limit their borrowing and purchasing powers. Let's say your annual income of $200,000 is made up of 50% basic and 50% bonuses. The recognized value after the haircut is $170,000. Those with unimaginable variable income will be badly hit.

In case you wonder why HNWIs could be affected, it's due to them mostly earning the bulk of income as bonuses. Now that these are discounted, they are surely impacted. Buying the luxury property is much harder now.

Rich retirees, unemployed and HNWIs

With no income, these groups can borrow based on Asset-based Lending (ABL). Other financial assets are subjected to a maximum haircut of 70% to no haircut depending on asset type and pledged status. Then the discounted value of the assets will be amortized over 4 years as income streams for computation.

HNWIs are affected too since they may have fully paid properties and lots of assets which now are converted to much smaller income streams.