The last cooling measure was just implemented on 16 Dec 2021. On 30 Sept 2022, the Singapore Government announced yet another round of measures to cool the private residential and HDB resale markets.
Unlike previous broad based measures, these measures are a lot more targeted. We will talk about a few scenarios and show some calculations on how this will directly these 7 groups of people.
- HDB loans for BTO or resale homebuyers
- Bank loan for private residential homebuyers
- Homeowners downgrading from private to HDB
- Homeowners upgrading from HDB to private
- Landlords
- Home sellers
- August 2022 BTO applicants
We dive into greater detail below, but first…
What are the cooling measures this time?
With effect from 30 September 2022, the changes are as follows:
- Residential Bank loans: 4% interest rate floor*, being a 0.5% increase from 3.5% previously to 4.0% now.
- HDB loans: Introduction of interest rate floor of 3%.
- HDB loans: Lowering loan to value limit from 85% to 80%.
- Downgraders from private residential to HDB have to wait 15 months after the sale of their private properties before they can buy a HDB resale flat instead of 6 months. This will not affect seniors aged 55 and above who are buying a 4-room or smaller resale flat. This is a temporary measure to moderate demand for resale flats.
*The interest rate floor is used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR). The loan to value limit remains at 75%.
The full press release can be found here.
Why are cooling measures happening again?
Interest rates have risen significantly.
They are likely to increase further in the near future and this will affect borrowing costs for home purchases. To ensure prudent borrowing and avoid future difficulties in servicing home loans, the Government will tighten the maximum loan quantum limits for housing loans.
Looking at the two charts below, we can see that private residential and HDB property prices are at highs and this is affecting affordability for the average resident.
Will you be affected by the latest cooling measures?
(tl;dr yes, if you’re in these 7 groups)
1) Those with HDB loans for BTO or resale homebuyers
The table below works out the policy changes, from a LTV of 85% and interest rate of 2.6% to a LTV of 80% and interest rate of 3%.
As the current HDB loan interest rate is much more favourable, we have taken the assumption that a HDB homebuyer will use a HDB loan.
Although the LTV has decreased to 80%, the interest rate has increased to 3%.
Looking at the data presented in the table below, the monthly mortgage and combined income required now has decreased by 0.9%. However, there will be 5% additional payment upfront.
| HDB Loan – LTV 80%, interest rate 3% | |||
| Home value ($’000) | 1,000 | 750 | 500 |
| LTV | 80% | 80% | 80% |
| Housing loan quantum ($’000) | 800 | 600 | 400 |
| Years | 30 | 30 | 30 |
| Interest rate | 3% | 3% | 3% |
| Monthly mortgage payment | $ 3,373 | $ 2,530 | $ 1,686 |
| Combined income required based on MSR 30% | $ 11,243 | $ 8,433 | $ 5,620 |
| HDB Loan – LTV 85%, interest rate 2.6% | |||
| Home value ($’000) | 1,000 | 750 | 500 |
| LTV | 85% | 85% | 85% |
| Housing loan quantum ($’000) | 850 | 637.5 | 425 |
| Years | 30 | 30 | 30 |
| Interest rate | 2.6% | 2.6% | 2.6% |
| Monthly mortgage payment | $ 3,402 | $ 2,552 | $ 1,701 |
| Combined income required based on MSR 30% | $ 11,340 | $ 8,507 | $ 5,670 |
| Change in combined income required | -0.9% | -0.9% | -0.9% |
| Additional upfront CPF/Cash required ($’000) | 50 | 38 | 25 |
We think this measure is intended to maintain monthly mortgage payments at reasonable levels.
For homebuyers who have the means to fork out the additional 5% cash or CPF, they can still purchase a home of the same value and have similar levels of mortgage payments.
For a homebuyer who is only able to afford a 15% downpayment and not a 20% downpayment, the 5% decrease to LTV means that the home value that this homebuyer can afford is now 25% lower, i.e., if you have $150k in Cash and CPF, assuming you have the required income levels, you would have been able to buy a $1m HDB.
Now, with a $150k downpayment, you can only purchase a $750k HDB. The homebuyer would now need an additional $50k cash upfront.
2) Private residential homebuyers with Bank Loans
The table below works out the policy changes, from an interest rate floor of 3.5% to 4%.
As there is no change to the LTV, hence the monthly mortgage and combined income required now has increased by 6.3%. This also means that the loan quantum has decreased by around similar percentage levels.
| Bank Loan – LTV 75%, Interest rate 4% | |||
| Home value ($’000) | 1,500 | 2,000 | 2,500 |
| LTV | 75% | 75% | 75% |
| Housing loan quantum ($’000) | 1,125 | 1,500 | 1,875 |
| Years | 30 | 30 | 30 |
| Interest rate | 4% | 4% | 4% |
| Monthly mortgage payment | $ 5,371 | $ 7,161 | $ 8,952 |
| Combined income required based on TDSR 55% | $ 9,765 | $ 13,020 | $ 16,276 |
| Bank Loan – LTV 75%, Interest rate 3.5% | |||
| Home value ($’000) | 1,500 | 2,000 | 2,500 |
| LTV | 75% | 75% | 75% |
| Housing loan quantum ($’000) | 1,125 | 1,500 | 1,875 |
| Years | 30 | 30 | 30 |
| Interest rate | 3.5% | 3.5% | 3.5% |
| Monthly mortgage payment | $ 5,052 | $ 6,736 | $ 8,419 |
| Combined income required based on TDSR 55% | $ 9,185 | $ 12,247 | $ 15,307 |
| Change in combined income required | 6.3% | 6.3% | 6.3% |
| Additional upfront CPF/Cash required ($’000) | – | – | – |
We think this measure is intended to ensure that upgraders and private property purchasers do not overstretch themselves. This is to ensure monthly mortgage payment obligations can be met should interest rates increased further.
For a homebuyer who still wants to buy a private property at similar quantum, looking at the table below, the homebuyer would now either need 6.3% higher income (as presented above) or an 18% higher upfront downpayment (as presented below).
| Home value ($’000) | 1,500 | 1,500 |
| LTV | 75% | 75% |
| Housing loan quantum ($’000) | 1,058 | 1,125 |
| Years | 30 | 30 |
| Interest rate | 4% | 3.5% |
| Monthly mortgage payment | $ 5,051 | $ 5,051 |
| Combined income required based on TDSR 55% | $ 9,184 | $ 9,184 |
| Downpayment required | 442 | 375 |
| Additional downpayment required ($’000) | 67 | |
| Additional downpayment required | 18% | |
| Home value ($’000) | 2,000 | 2,000 |
| LTV | 75% | 75% |
| Housing loan quantum ($’000) | 1,411 | 1,500 |
| Years | 30 | 30 |
| Interest rate | 4% | 3.5% |
| Monthly mortgage payment | $ 6,736 | $ 6,736 |
| Combined income required based on TDSR 55% | $ 12,247 | $ 12,247 |
| Downpayment required | 589 | 500 |
| Additional downpayment required ($’000) | 89 | |
| Additional downpayment required | 18% |
3) Homeowners downgrading from private to HDB
As the wait out period used to be 6 months, downgraders have been selling their private property and negotiating to stay in the house for a couple more months before moving out into their HDB.
Now they will likely have to rent.
4) Homeowners upgrading from HDB to private
The policy change affects the upgrader in terms of loan quantum due to the higher interest rate requirement. The policy change also affects the upgrader’s ability to sell his property.
Although the increased wait-out period is temporary, and has been amended several times in the past, Upgraders should take a prudent approach and plan for any further policy changes, whether tightening or relaxing.
5) Landlords
Landlords will benefit as new homebuyers may decide to wait and accumulate additional cash before buying a home while there will be additional revenue opportunities from downgraders.
6) Home sellers
Needless to say, the upwards price trajectory would be stifled with the combination of a higher interest rate environment, weaker economy and the current policies. Transaction volumes will also likely decline.
7) August 2022 BTO applicants
These new measures do not apply to applications for a flat in our Aug 2022 BTO exercise. HDB has informed that due to overwhelming applications, HDB will release ballot results for these applicants in mid October instead of end of September.
Should you be allocated a queue number, Congratulations are in order!
How interest rate dynamics will continue to affect property prices
As of the last week of September 2022, the 3M SORA rate has hovered around 1.9%. With the US Fed factoring in another 1.25% of interest rate, we may see the 3M SORA going to 3%.
For a floating rate package of 3M SORA + 1.00% p.a., this means that the interest rate may get to 4%.
This is why the government has increased the floor rate to 4% for Bank loans.
It is worth highlighting that the overnight SORA rate (i.e. 1day rate) was 2.74% on 29 Sep 22 and 3.89% on 30 Sep 22. Should the SORA rate remain above 3%, total interest rates will be higher than the 4% floor.
Should interest rates increase by another 0.5%, the additional effects illustrated above will apply.
Concluding statements
If you have been following housing policies, it should be clear that cooling measures are a feature rather than an abnormality.
The Singapore Government has once again demonstrated its ability to take relevant actions promptly to promote continued housing affordability. Unlike previous measures which were more broadbased, this set of cooling measures are calibrated to keep HDB resale prices and private residential prices affordable for homebuyers, ensure homeowners can meet their mortgage payments even in the current rising interest rate environment and stem risky upgrading plans.
If prices go down because of the latest policies, housing will become more affordable, if prices do not go down, then these policies will actually make buying a home more difficult.
Then again, past trends have also shown that transaction volumes and property prices will subsequently recover and this could be an indication to all stakeholders that it is a matter of time before the next buoyant phase and of course the next cooling measure.
