6 key highlights you must know about MAS property loan framework

There'll be medium term interest rate.

According to Nomura, on 28 June, the MAS (Monetary Authority of Singapore) announced the introduction of the Total Debt Service Ratio (TDSR) framework for all  property loans granted by financial institutions (FIs) to individuals. 

Here's more from Nomura:

The key highlights of the framework are as follows:

• FIs are required to take into account all outstanding debt obligations (property and non-property) of the borrower in its credit assessment.
•  In computing the TDSR, FIs are required to apply a specified medium term interest rate (3.5% for housing loans & 4.5% for non-residential loans) or the prevailing market interest rate, whichever is higher.
• FIs are required to apply a hair cut of at least 30% to all variable income (e.g. bonuses) and rental income.
• In addition, this haircut is to be applied to the value of any eligible financial assets taken into consideration in the assessment of the borrower’s debt servicing ability. 
• Borrowers who are named on the property loan are to be the mortgagors of the residential property for which the loan is taken.
• Guarantors for borrowers not meeting the TDSR requirements are to be brought in as co-borrowers. 

As a bottom-line, MAS expects any property loan extended by the FI to not exceed a TDSR threshold of 60%, above which the MAS will consider as imprudent.

Loan applications exceeding this threshold would  have to be approved only on an exception basis (e.g. approval via board  of directors or senior management in the case of foreign FIs)