TFN Editorial Team. 15 May 2016

The Total Debt Servicing Ratio (TDSR) was introduced on 29thJune 2013 and is generally known as the cooling measure that put the final nail into the coffin for Singapore’s runaway property prices.

The TDSR framework is simply a standardised means for Financial Institutions (FIs) to assess the ability of borrowers to service their loans taking into consideration all their other outstanding debt obligations. 

FIs will be required to compute the TDSR, or the percentage of total monthly debt obligations to gross monthly income. In the case of a joint application, debt obligations as well as income will be aggregated. The TDSR framework applies to individuals as well as investment holding companies set up for property purchases.

 

TDSR = Monthly Total Debt Obligations x 100%
                   Gross Monthly Income

 

The TDSR will apply to loans for:

  • the purchase of all types of property (residential and non-residential),
  • loans secured on property (where a loan is secured by a pool of collateral including property, the TDSR rules will apply if the market value of the property is 50% or more of the value of the total pool of collateral), and
  • the re-financing of all such loans.

    Exemptions:

  • loans to corporates, 

Existing borrowers that are seeking to re-finance their mortgages if they are owner-occupiers and where –

(i)             the option to purchase (OTP) the residential property was granted prior to 29 June 2013;

(ii)           the residential property is the only property owned by the borrower (either by himself or jointly);

(iii)          the borrower is one of the occupiers of the residential property;

(iv)          the borrower does not have any outstanding loan for the purchase of any other property or the re-financing of such a loan, apart from the residential property being re-financed; and

(v)            the borrower does not have any outstanding loan (either in his own name or jointly with another borrower) otherwise secured on any property, including the residential property being re-financed, or the re-financing of such a loan.

 

Individuals looking for property related loans will only be allowed to borrow up to 60% of their adjusted income(after applying a haircut to the variable portion of their gross income). For HDB purchases, another ratio known as the Mortgage Servicing Ratio (MSR) of 30%adjusted income will apply.

The adjusted income is calculated by applying a 30% haircut to all variable sources of income (commission, bonus, rental income, etc). For borrowers with liquid assets, they may pledge their assets to increase their assessable income. Do note that this only applies to some banks and on a case to case basis. This amount (full amount for fixed deposits and a 70% haircut on all other asset classes pledged commonly applies) will be then divided by 48 and added to the assessable income. For example, $1 million of fixed deposit pledged will add (1million / 48) to the gross assessable income.

The total debt obligation is calculated by aggregating all debt obligations like credit card installments, car loans, and the proposed mortgage loan instalment. The mortgage loan instalment will be affected by the tenor of the loan, typically up to 35 years or till the borrowers turn age 65 (based on income-weighted age for joint borrowers).

 

Income-Weighted Age

Income weighted age is the age used to determine the maximum loan tenor in the case of a joint application. It is simply an aggregation of the ratio of each applicant's income to the total income multiplied by his own age.

Sample Case:

Borrower A: Income of $8,000 and 50 years old

Borrower B:Income of $2,000 and 40 years old

Income weighted age= [(8000/10,000) x 50] + [2000/10,000) x 40 = 40 +8 = 48 years old

In this case, the borrowers will be able to take up a loan for up to 17years(65 – 48).

 

On top of TDSR, Loan ToValuation (LTV) restrictions also apply to all property loans.The amount that can be borrowed is the lower of either the amount predicated by the TDSR calculations or LTV restrictions(for example, 50% for a borrower with an existing property loan).

 

If you have any queries or would like to have a hassle-free consultation to determine your loan eligibility, please email us at enquiries@thefinancialnetwork.com.sg.