What You Need To Know About The New Housing Loan Rules

Lowered loan limits and debt ratios, along with higher additional duties have been brought into effect as Singapore’s property market continues to stay heated. Here’s how these changes could affect homebuyers down the road.

Even in the face of a multi-year pandemic, Singapore’s residential real estate sector has been surprisingly resilient. 

Prices of homes and residential properties continue to ‘remain buoyant’, as stated by the Monetary Authority of Singapore, prompting revisions to existing cooling measures in a bid to further rein in the property market. 

Revolving around housing loan rules, these changes took effect late last year — on 16 December, to be exact — and will impact future homebuyers in various ways. With the economic landscape evolving over the years, understanding the nuances between home loan and personal loan policies becomes crucial for prospective buyers and borrowers alike.

In this article, we will be taking a look at how the housing loan rules in Singapore have changed, and how they might affect you.

At-a-glance: What are the new housing loan rules?

In short, there are three main changes prospective buyers of residential properties should take note of. These are:

• Increase in Additional Buyer’s Stamp Duties
• Tightened Total Debt Servicing Ratio
• Reduced Loan-to-Value ratio for HDB housing loans

Let’s go through each of them one by one.

Increased Additional Buyer’s Stamp Duties (ABSD) for second residential property onwards 

Singapore citizens: additional 5% for second residential property, 10% for third and subsequent properties

If you’re a citizen of the state buying your first residential property, you (still) won’t have to pay any ABSD. This remains unchanged from before.

However, buying a second residential property will now incur an ABSD of 17%, which is an increase of five percentage points from the previous rate of 12%.

For third and subsequent properties, the increase is even larger — 10 percentage points. This means you’ll need to pay ABSD of 25%, instead of the previous rate of 15%.

Permanent Residents: between 10% to 15% additional ABSD for residential properties beyond the first

Permanent Residents (PRs) looking to buy their first residential property will face an ABSD of 5%, unchanged from before.

For subsequent properties, however, additional ABSD applies. The rate goes up to 25% (up from 15% previously) for their second residential properties, and 30% (15% previously) for third and subsequent residential properties.

Foreigners: additional 10% ABSD across the board

Foreigners looking to buy residential properties in Singapore have been hit the hardest by the new changes. 

Now, they will have to pay ABSD of 30% of property’s value, no matter if it’s their first residential property or their tenth.

Previously, the ABSD applicable to foreign buyers stood at 20%. 

Tightened Total Debt Servicing Ratio (TDSR)

Another important change to take note of is the lowered Total Debt Servicing Ratio (TDSR), which you may know is a measure introduced to rein in household debt on the island. 

It takes into account all sources of debt; besides your mortgage payments, education loans, car loans, personal loans, credit card debt and other unsecured loans are also included. 

If the total payments made to all your debt obligations each month exceeds the prevailing TDSR rate, you are likely to face difficulties getting further loans. (However, do note this is just a guideline, and it is up to the discretion of the issuing financial institution whether to actually lend you more money.)

Under the revised regulations, new mortgage loans must not cause the applicant’s TDSR to exceed 55%. This limit was lowered from 60% previously, which means you may need to offload some debt before your mortgage may be granted.

However, if you’re seeking to refinance an existing mortgage, one that was granted before 16 Dec 2021, the previous TDSR limit of 60% still applies. 

Reduced Loan-to-Value (LTV) ratio for HDB housing loans

The Loan-to-Value ratio, too, has been affected by the new rules, but this only affects housing loans granted by HDB.

Now, the maximum loan amount you can get on your HDB mortgage is 85% of the property’s value. This is a reduction of five percentage points from previously, which was up to 90%.  

This means that homebuyers will need to set aside more cash and/or CPF savings so as to make up for the extra 5%. 

For those mortgages granted by other financial institutions, the LTV stays the same, at a maximum of 75% of the property’s value. 

Calculating your home loan under the new rules

Now that we’ve discussed the three changes in housing loan rules, let’s take a look at how to apply them when calculating your own home loan.

Step 1: Check your TDSR

Unless you’re paying for your property entirely in cash, you’ll probably need to apply for a mortgage. Hence, the first thing you should do is to check how much ‘room’ you have under the TDSR.

Add up all your monthly debt payments, and divide it by your income. Does it exceed 55%? 

If it does, you’re not likely to be able to get a mortgage (but as noted above, you can still try applying for one). 

If it does not, then you will likely be able to get a mortgage. However, you’ll only be loaned up to the amount it takes to hit that 55% threshold. 

This means that if your TDSR is already very close to the limit, say 45%, the mortgage you’re likely to be granted only a very small amount, which may not be sufficient. 

Hence, you may need to clear off some debts before you can get a mortgage that is large enough. 

Of course, all this is moot if you don’t have any debts at all. In that case, you just need to have a large enough income in order to get the mortgage you want.

Step 2: Decide if you’re getting an HDB loan

If you’re trying to buy an HDB flat, you can choose between an HDB loan, or a mortgage from a bank or other financial institutions. For private residence properties, you are only allowed to use mortgages from financial institutions. 

When using an HDB loan, you may borrow up to 85% of the value of your flat. Now, as noted above, this limit has been lowered from the previous limit of 90%.

This means that HDB homebuyers will now have to pay for 15% of their flat’s sale price using their own funds — either in cash, CPF savings, or a combination of the two. 

If you decide to apply for a mortgage from a financial institution instead, the maximum amount you can borrow is 75% of the property’s value. This remains unchanged from before.

Step 3: Prepare additional funds for ABSD

Now this step is actually optional, and only applies if you’re buying a second property or beyond. 

Purchases of residential properties beyond the first will be subject to ABSD — which is basically a financial disincentive to discourage people from property speculation.

If you’re buying additional residential properties, you’ll need to pay the ABSD, which is detailed above. 

Having full citizenship here will give you a slight advantage, as the maximum you’ll need to pay is 25% of the property’s value — a costly amount, to be sure!

PRs and foreigners will need to pay up to 30% in additional duties, depending on how many residential properties they already own at the time of purchase. 

Read these next:
Refinancing vs Repricing Home Loan: What’s The Difference?
How Much Can You Borrow For Your Home Loan?
Rising Interest Rates And The Effect On Mortgage Debt In Singapore
The When And How Of Refinancing Your Home Loan
HDB Loan Vs Bank Loan: Which One Should You Go For?