
Singaporeans love properties. About 9 out of 10 Singaporean households own their own property. For most of us, buying a property is likely the biggest purchase we will make in our lives.
Purchasing property in Singapore is far from affordable, with HDB flats starting at several hundred thousand dollars and some HDB flats even exceeding $1 million. Private condominiums are even more expensive. As a result, most buyers will need to take out a mortgage to finance their purchase.
However, securing a mortgage involves more than just finding a bank willing to lend the required amount. Buyers must also understand two key regulations determining how much they can borrow: the Loan-to-Value (LTV) Limit and the Total Debt Servicing Ratio (TDSR).
What Is The Loan-To-Value (LTV) Limit?
As explained by the Monetary Authority of Singapore (MAS), Loan-To-Value (LTV) refers to the loan amount as a percentage of the property’s value. For example, if we purchase a condominium apartment for $1,000,000 and take a loan of $750,000, the LTV is 75%.
The LTV limits for property purchases in Singapore are currently as such.
Outstanding Housing Loans | LTV Limit | Minimum cash down payment |
None | 75% or 55% | 5% (for LTV of 75%) 10% (for LTV of 55%) |
1 | 45% or 25% | 25% |
2 or more | 35% or 15% | 25% |
The Loan-to-Value (LTV) limit is 75% if you have no existing housing loans. However, the more housing loans you have, the lower your LTV limit. For instance, if you’re taking out a second housing loan, the LTV limit drops to 45%.
There are two possible LTV limits: a higher and a lower percentage. The lower LTV limit (55%) applies if the loan tenure exceeds 30 years (or 25 years for HDB flats) or if the loan extends past the borrower’s 65th birthday. For example, a 50-year-old buyer with no existing housing loans who takes out a 20-year mortgage will be subject to the lower LTV limit of 55%.
For those taking a housing loan from HDB, the LTV is also 75% of the purchase price or valuation, depending on which is lower. If the remaining flat lease does not cover the youngest flat applicant till the age of 95, a lower loan limit pro-rated from 75% applies
Loan-To-Value (LTV) Applies To Our Property’s Value, Not Necessarily Our Purchase Price
Another important point to know is that the LTV limit is based on the assessed property’s value, not necessarily the purchase price of a property. So, if we purchase a private property for $1.10 million but the property is later valued at $1 million, the 75% LTV will apply to $1 million, not our purchase price of $1.10 million. This means the bank can only loan us $750,000, with the remaining $350,000 paid using a combination of cash and CPF.
Read Also: What Happens When You Buy A Property Above or Below Valuation?
How Total Debt Servicing Ratio (TDSR) Affects How Much You Can Borrow
While the LTV limit tells us how much the banks can lend us, the Total Debt Servicing Ratio (TDSR) calculates how much we can borrow from the bank. The two amounts are not always the same. Just because a bank can lend us doesn’t necessarily mean we qualify for the entire loan amount.
As explained by MAS, the Total Debt Servicing Ratio (TDSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for. As of today, the borrower’s TDSR should be less than or equal to 55%.
For example, an individual earning a gross monthly income of $6,000 should not have monthly debt obligations exceeding $3,300, which is 55% of their income under the Total Debt Servicing Ratio (TDSR) rule. This limit applies not only to housing loans but also to other types of loans, such as car loans, renovation loans, student loans, and credit card debt.
Doing the math and determining how much you can borrow before applying for new loans is essential.
Assuming a monthly income of $6,000, the TDSR cap is $3,300. If you already have a car loan with a monthly payment of $1,000, your mortgage payments cannot exceed $2,300. For instance, if you want to take out a $600,000 loan with a 25-year tenure and an interest rate of 2.6%, your monthly repayment would be $2,722—exceeding the TDSR limit. As a result, you wouldn’t qualify for the loan. This is a crucial consideration before moving forward with a property purchase.
However, paying off your car loan first will free up your monthly debt obligations and increase your borrowing capacity. Once the car loan is cleared, you can use the full $3,300 for your mortgage, qualifying you for the housing loan you need.
Read Also: Understanding Total Debt Servicing Ratio (TDSR) – And How It Affects Your Personal Finance Decision
One way to still meet the TDSR requirement without lowering the amount we wish to borrow is to stretch the tenure of our housing loan.
While this is a viable option, we must also remember that having a longer loan tenure not only increases the total interest costs we incur but may also mean that our LTV limit will go down. Remember, if the loan tenure exceeds 30 years (or 25 years for HDB flats), or if the loan period extends beyond the borrower’s age of 65, then the LTV limit will be lower.
Another aspect that affects our TDSR is the interest rate. Effective 30 September 2022, the interest rate floor used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for housing loans issued by financial institutions is at a minimum of 4%. p.a. What this means is that the interest rate assumed when assessing borrowers’ repayment ability is assumed to be at least 4.0%.
Mortgage Servicing Ratio (MSR) Also Apply To HDB Flat
If we buy an HDB flat or executive condominium, we must meet the Mortgage Servicing Ratio (MSR) requirements. According to MAS, MSR refers to the portion of a borrower’s gross monthly income to repay all property loans, including the loan being applied for. MSR is capped at 30% of a borrower’s gross monthly income.
As of 30 September 2022, a new interest rate floor of 3% was introduced to compute the eligible loan amount. While this would not change the interest rate charged, it would reduce the maximum we can borrow.
For example, assuming you want to take a $300,000 loan from HDB, the actual interest rate charged will be 2.6% which is a monthly repayment of about $1,360. This translates to an income of about $4,530, with 30% MSR. However, HDB will take the interest rate of 3% to compute the monthly repayment of about $1,420 and use it to determine the maximum loan you can borrow under the MSR. Your income would need to be $4730, $200 more than before, to borrow the same amount.
Higher Loan-To-Value (LTV) Limit For HDB Housing Loan
For HDB flats bought using an HDB Housing Loan, the LTV limit is now also 75% (it was 80% before 20 August 2024).
As we can see, finding the right home we want and getting it at the right price is not the only thing we need to be concerned about when buying a property. To ensure we can complete the transaction for our dream property, we should first meet the LTV limit and the TDSR requirement.
Cover image credit: Raymond Quek
This article was first published on 25 May 2021 and has been updated with the latest property cooling measures.
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