6 things about the new homebuying rules you must know right now

It aims to prevent 'over-levaraging'.

According to Knight Frank, here are the rationale behind the new rules introduced by the MAS last 29 June:

The government’s latest measures aim to increase the financial prudence of both financial institutions and borrowers in the face of growing uncertainty in global financial markets.

For almost 5 years since the 2008 global financial crisis, the era of high liquidity and low interest rates from US quantitative easing has contributed to rising credit exposure incurred by both financial institutions and borrowers.

In recognizing this escalating risk that could be magnified in event of any tightening of monetary policy or a credit crunch, the MAS measures seek to prevent ‘over-leveraging’ committed by borrowers, and also to mitigate credit risk that would arise from the prospect of rising interest rates.

The measures also serve to limit the financial institutions’ over-exposure to housing loans and reduce their financing risks from potential default by borrowers especially during period of high interest rates or economic recession.

This latest measure is viewed as necessary in light of current market situation, to ensure the robustness of our banking system’s capitalization and strengthen the financial position of consumers against any unforeseen market circumstances.

The adoption of 3.5 per cent medium-term average interest rate as the basis of TDSR calculation for property loan is considered prudent and appropriate, taking into consideration historical average SIBOR trends and MAS projection of interest rates under stressed conditions.

During periods of high interest rates in 1997 and 1998, monthly 3-month SIBOR averaged 4.5 per cent. Following the Asian Financial Crisis and periods of economic lull and recoveries, monthly 3-month SIBOR averaged close to 2 per cent from 1999 to 2007. Current 3-month SIBOR stands at 0.38 per cent since December 2011.