Due to the increasing market interest rates that is more than likely set to increase further overtime, there has been massive shifts in borrowing costs for home purchases. In an effort to ensure that there is prudent borrowing among those interested to buy homes, the Government has recently announced property cooling measures. It was in a bid to also ensure that buyers will not be facing difficulties in the future paying back home loans that are above what they can manage.
Increase in medium-term interest rate floor
With effect from 30 September 2022, any property loans granted by private financial institutions will be subjected to a higher medium-term interest rate floor by 0.5%. If there is no OTP, this new rule would apply to those with the Sale and Purchase Agreement completed on 30 September 2022.
The medium-term interest rate floor is used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).
Interest rate floor of 3% to be implemented for HDB housing loans
For any application for home loans from 30 September 2022, the applications will be subjected to an interest rate floor of 3% when calculating the eligible loan amount. While the actual HDB concessionary interest rate, which will remain unchanged at 2.6% per annum, this is to place a restriction on the eligible loan amount to ensure that buyers will not be facing difficulties in the future paying back home loans that are above what they can manage.
There will be no impact to existing HLE applications received by HDB before this time.
Lowering of Loan-to-Value (LTV) limit
Another change to expect would be the lowering of Loan-to-Value (LTV) limit, which goes down from 85% to 80% for HDB housing loans. As usual, the lower LTV limit will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after 30 September 2022.
Implementation of wait-out period of 15 months
Finally, there is also a newly imposed wait-out period of 15 months for private residential property owners to buy a non-subsidised HDB resale flat. This is a temporary measure that is newly implemented from 30 September 2022 as well.
It means that those thinking to switch up from their private residential property to a non-subsidised are now left with no choice but to wait out for the 15 months, be it to stay in a rental home or back with their parents to tide through the period.
However, it is to be noted that the wait-out period will not apply to seniors aged 55 and above who are moving from their private property to a 4-room or smaller resale flat.
What to do from here?
Of course, this requires quite a bit of time to digest all the information and re-plan your finances. If you belong to the group that will be affected by the newly implemented 15 months wait-out period, you probably also need to look for way to mitigate this issue, or to relook at whether if you are keen to proceed with the plan after all.
To know more and make informed property decisions, reach out to us to know more. We are more than ready to provide you with our well-equipped information and advice to ensure that you make the best decision available.