ST : MAS wants tighter rules for home loans

15 JAN 2011,
property measures

MAS wants tighter rules for home loans

Borrowers' debts from other sources should be taken into account in assessment, it said

By Gabriel Chen

HOMEBUYERS may not get the same quantum of loans from banks to buy a home under new rules being proposed by the regulator.

The Monetary Authority of Singapore (MAS), in a consultation paper released on Thursday, wants financial institutions to add up a borrower's loans from sources like unsecured credit facilities and insurance policies before deciding on how much they can lend for a home.

MAS' aim is to remind banks to maintain prudent credit standards and to encourage financial prudence among borrowers.

Take a person with a $5,000 loan under Citibank's Ready Credit facility and a $5,000 insurance policy loan with insurer Great Eastern.

The MAS is proposing that these debts be taken into account by the bank when computing the homebuyer's loan-to-value (LTV) ratio and in assessing whether he complies with lending rules.

And in another 'prudential measure', the MAS is proposing that mortgage equity withdrawal loans (MWLs) - akin to a home equity line of credit - be subjected to various LTV limits.

These loans, which can be used for anything from refinancing a primary housing loan to buying shares, have been on the rise following the Goverment's August property cooling measures.

Bankers say that more borrowers have been using such loans to make downpayments for investment property.

The LTV limits vary across the industry although some 'liberal banks' are increasingly applying the 90 per cent LTV limits.

The MAS is now proposing that if a borrower has already paid off the mortgage on his home, he can buy another property with at least a 20 per cent deposit with a MWL.

But if he still has outstanding mortgage debt, he will have to put down at least 40 per cent deposit on a second home.

The MAS noted that the purpose of this policy is 'to apply the regulatory LTV limits, not just to loans used to purchase residential property, but to loans secured on residential property as well'.

'This is to be consistent with the need for financial institutions to maintain prudent credit standards and to encourage financial prudence among borrowers.'

If implemented, it can be 'seen to curb overleverage by consumers in the context that interest rates globally are unlikely to stay at depressed levels indefinitely', according to Mr Geoffrey Ying, who heads the mortgage division at financial advisory firm New Independent.

Ms Helen Neo, Maybank Singapore's head of consumer banking, reckons the proposals could reduce the likelihood of negative equity - when the loan exceeds the value of the home.

But some bankers say the proposal to factor in unsecured credit facilities and insurance policy loans could be hard to implement.

'Most banks already factor in an individual's unsecured credit facilities in the calculation of his total debt-servicing ratio, by tapping on Credit Bureau data,' said Standard Chartered's head of consumer banking for Singapore, Mr Dennis Khoo.

'But it's currently inferred because the data indicates the total amount of credit facilities the individual has with banks, and not the breakdown of how much facilities he has with each bank.'

gabrielc@sph.com.sg