Impact Of New Mortgage Loan Restrictions
>> Saturday, October 6, 2012
In a MAS release that will take immediate effect, the government will intervene on mortgages
for HDB flats and private properties. These home loans can only span 35 years and those wanting
loans longer than 30 years or tenures exceeding the borrowers' age of 65 can only borrow up to 60
per cent of the property price.
My humble opinion on the impact.
Firstly, it will affect those who wish to take loan tenures
that stretch longer than age 65. This group of people is already over
stretching in the first place. It is only logical and prudent to limit the age
to the retirement age of 65. Of course, there will be those who invest in
property and the recurring rental income is assumed to supplement the mortgage
installments well pass the owners’ age of 65. Therefore, this group will be
affected to exercise more caution on their assumption of continuous rental
income.
Secondly, 30 year tenures. A quick calculation is 65 minus
30 to arrive at the age to take the longer loan tenure are 35 years old. Anyone
above that age, who is taking a loan, will need to take a correspondingly
shorter tenure. Considering most property investors average age is about 40 to
45, because by now they will have paid off majority/all of their existing property
mortgage (note: property prices were much cheaper when they started their loans
15 years ago), they will possess the savings and income to invest in a second
property. They will now be restricted to a 15 to 20 year mortgage; else they
will have to fork out a hefty down payment. This would mean monthly
installments that rental cannot cover. However, if they possess a high income
that can cover the difference, they can still invest, albeit more prudently as
they will need to consider contributing to the difference monthly.
Thirdly, 40%/60% down payments when all criteria fail. In my
opinion, those who fail to meet new mortgage criteria, in general do not even
bother with mortgage. They will be the ultra rich (including foreigners from
places like Malaysia,
Indonesia, China)
who purchase properties without even taking on mortgages. Hence, the down
payment or loans are irrelevant to them.
In conclusion, the new measures are reasonable and impact is
meant to have people make more prudent decisions. Those not following these
guidelines in the first place are already making speculative decisions and
should only be the minority.
However, my concern are:
-
How long will these measures be in place
-
This is quite a dampener for less wealthy individuals who wish to use
property as a leveraged asset class to invest and squeeze themselves just to meet the criteria
at the borderline now. In future when markets (property prices and rental
rates) come down, interest rates go up, they will be caught in a tight
situation
-
Banks and developers will still get creative to circumvent
the measures and introduce workarounds that have hidden consequences while at
the same time taking advantage to position it as a unique selling point
7 comments:
No doubt these restrictions will affect pockets of less wealthier people but these restrictions will avoid price bubble & bring log term stability in property market.
Hi WMC. I believe it will do little to impact prices. It is meant more to sieve out people who over leverage this asset investment. As for long term stability, brings me to the concern of how long will this restriction be in effect. Will it be removed when prices come down?
Hi Lau,
Sure restrictions will be removed when prices start to go down. But you will be more worried about the reasons why prices are going down by then.
In my humble opinion, there are "enormous problems" 8 to 10 years down the road. The population department said we need to immigration or the economy will suffer in about 8 years. However, the measures for our total fertilty rate will not work because they are half hearted. The police force are now short and the NSF will be pushed to the frontline. These are vital institutions that will feel the impact because strictly no foreigners. What will happen when our local population shrinks significantly in 10-20 years? Can the CPF and the insurance companies like NTUC cope? Can the SAF and police force cope? Even if measures instituted now are correct, it will take 20-25years to change the tide. We are now beginning to experience the decline in population 25-30 years after the STOP-at-2 policy. The bad news is our current measures to boost the TFR are unlikely to work. If this property bubble continues till 2020, then more people will suffer. It is better to keep this bubble in check.
Hi fr. I do not think that this will keep prices in check in the near term. It would rather cause people to make more prudent choices only. To protect those rash decisions from becoming a problem when the down cycle comes.
You are assuming really far for fertility and into 2020. Won't want to speculate to that territory just for a topic on mortgage restriction.
Hi Lau,
When one chooses to invest in property, one has to be prepared for the long term of 5 to 10 years at least. Hence, one has to try to visualise how things may pan out in 2020. Of course, great visionaries like LKY will provide very useful opinions on and off.
Especially more so when many Singaporeans use their CPF for their properties.
One has to ask certain questions if certain scenarios pan out eg
what if minimum sum for CPF is raised even higher?
what if age for withdrawal of cash is raised even higher because life span is increasing and population is shrinking?
If ill prepared, property invstment can be a very dangerous leverage as it can cut both ways.
A mortgage loan modification may be the solution to lower your monthly loan payment and help you stay in your home.
obama loan modification
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