Singaporeans love properties. As of 2019, more than 9 out of 10 Singaporean households own their own property. For most of us, buying a property is likely to be the biggest purchase we will make in our lives.
With HDB flats in Singapore costing at least a few hundred thousand dollars and private condominium apartments easily costing a million dollars or more, buying a property in Singapore is anything but cheap. This is why most buyers will need to take a mortgage to fund their property purchase.
However, taking out a mortgage isn’t as simple as finding a bank that is willing to loan us the money we need. We also have to be aware of two important regulations that have to be met. These are 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%.
As of 6 July 2018, the LTV limits for property purchases in Singapore are 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%|
If we have no existing housing loans, the LTV limit is 75%. The more housing loans we have, the lower our LTV limit will be. If we have one existing housing loan, our LTV limit will be 45%.
For the LTV Limit, there are two figures — a higher and a lower percentage. 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 lower LTV limit (i.e. 55%) will apply. For example, a 50-year-old buyer with no existing housing loan taking a 20-year mortgage will have an LTV limit of 55%.
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, and 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 to be $1 million, the 75% LTV will apply to $1 million, and 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.
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 to receive the full 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. A borrower’s TDSR should be less than or equal to 55% (this was reduced from 60% with effect from 16 December 2021)
For example, an individual who purchases a private property with a gross monthly income of $6,000 should not have monthly debt obligations that exceed $3,300 (55% of the monthly income). This doesn’t just apply to housing loans, but all other kinds of loans that the individual takes such as car loans, renovation loans, student loans and credit card loans.
With a bit of arithmetic, we can (and should) calculate for ourselves how much we can borrow before actually applying for any new loans.
Assuming we earn a salary of $6,000, our TDSR should not exceed $3,300 a month. If we already have an existing car loan repayment of $1,000, this means our monthly mortgage repayment cannot exceed $2,300. If we take a $600,000 loan, with a loan tenure of 25 years and an interest rate of 2.6%, our monthly mortgage repayment will be $2,722, which exceeds the 55% TDSR. Hence, we won’t qualify for the loan. This should be something that we consider before we proceed ahead to purchase a property.
However, if we can clear our car loan first, this will free up our monthly debt obligations to borrow more for our property purchase. After clearing our car loan, we will be able to borrow up to $3,300 — allowing us to be qualified for the housing loan we need.
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 that 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.
Mortgage Servicing Ratio (MSR) Also Apply To HDB Flat
If we buy an HDB flat or executive condominium, we will also need to meet the Mortgage Servicing Ratio (MSR) requirements. According to MAS, MSR refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. MSR is capped at 30% of a borrower’s gross monthly income.
Higher Loan-To-Value (LTV) Limit For HDB Housing Loan
For HDB flats bought using an HDB Housing Loan, the LTV limit is higher at 85% (it was 90% before 16 December 2021). In other words, the minimum down payment we need to make will be lower because HDB can offer us a loan of up to 85% of the property purchase price, or valuation, whichever is lower.
As we can see, finding the right home that we want and getting it at the right price is not the only thing that we need to be concerned about when buying a property. To make sure that we can complete the transaction for our dream property, we should always first ensure that we can meet both 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 announced on December 2021
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.