MAS explains the need for new super-stringent vehicle loan restrictions

And why they're stricter than past ones.

In its detailed FAQ addressing questions about the new motor vehicle loan rules, the Monetary Authority of Singapore (MAS) said that the new financing restrictions are more stringent than those imposed during 1995-2003 (LTV limit of 70% and maximum tenure of 7 years) because "we are now in an environment of unusually low interest and healthy income growth."

"These factors have supported the demand for motor vehicles. COE prices for most categories have also been climbing significantly, by 40 to 60 percent from a year ago. These conditions call for decisive action by the MAS, not just to encourage financial prudence, but also to dampen demand for motor vehicles. The introduction of loan limits of 70% and 7 years between 1995 and 2003 had little discernible impact on COE prices. This experience showed that for the loan limits to have an appreciable impact, the restrictions must be both stringent and comprehensive," it added.

"MAS has therefore imposed more stringent financing limits, of a 50 to 60% LTV ratio, compared to 70% previously, and reduced the maximum loan tenure to 5 years, compared to 7 years in the last round of measures. To prevent entities such as car dealers and non-bank credit or leasing companies from getting around MAS’ rules, MAS has directed the regulated FIs which finance such companies for vehicle loans to ensure that they too comply with the financing restrictions," it said further.