Whether it's an HDB loan or bank loan, most would likely take a loan to finance for their property. But that doesn't mean that you can borrow as much as you want as there's a limit to how much financing we can obtain. This is called the Loan-to-Value (LTV) ratio, which is a restriction that the Singapore government has put in place to limit the maximum amount property buyers can borrow from HDB and banks.
The LTV determines the maximum amount of funds you can borrow and hence, how much downpayment you need to pay upfront in cash and/or CPF OA savings. It applies as long as you take out a home loan to finance your property purchase, whether it's your first, second, or nth mortgage.
In this guide, we'll help you understand the concept of the Loan-to-Value (LTV) ratio, the rationale behind it, and the different LTVs for HDB and bank loans.
Loan-to-Value Ratio (LTV): an Overview
|What is LTV?||The loan-to-value ratio, or LTV ratio, is the amount that you are allowed to borrow to finance your home.|
|HDB Loan LTV||Up to 90% of the purchase price/property value|
|Bank Loan LTV||Up to 75% of the purchase price/property value|
|Factors that may affect your LTV||The property's lease, location and condition, your age and credit score|
What is a Loan-to-Value ratio (LTV)?
Let's first go back to basics. The loan-to-value ratio, or LTV ratio, is the amount that you are allowed to borrow to finance your home. For instance, an LTV ratio of 90% means that you can borrow up to 90% of your property value (or purchase price, whichever is lower).
LTV ratios are implemented as a safeguard against over-leveraging by borrowers. If you’re trying to decide between an HDB loan and a bank loan, read this article to know the differences between the two.
Note that for new launches (e.g. new HDB flats (BTOs), new executive condos, new launch condominiums), the LTV ratio will always take reference from the purchase price.
If you buy a resale property and you pay more than the amount of its HDB/bank valuation, that Cash Over Value (COV) amount must be paid in cash. For example, if you pay $530,000 for a property valued at $500,000, the LTV will apply to $500,000 (the valuation) and you must pay the $30,000 in cash.
Loan-to-Value ratios (LTV) in Singapore
One of the key differentiating factors of HDB housing loans and bank loans is the LTV.
HDB housing loan LTV (up to 90%)
The HDB Concessionary Loan (basically the HDB housing loan, which is only available for BTO, Sale of Balance Flat, Re-offer of Balance Flat, and resale flat purchases) have a maximum Loan-to-Value (LTV) ratio of 90%. This means you can loan up to 90% of the purchase price/property value, and have to pay at 10% in downpayment.
The downpayment can be paid by cash, from available savings in your CPF Ordinary Account (CPF-OA), or a mix of both. There is no minimum cash component.
Related article: Should You Use CPF to Pay Off Your Home Loan?
Since you can only own one HDB flat (and hence HDB housing loan) at any given time, this is the only LTV you need to know.
Bank loan LTV (up to 75%)
For a bank loan, the maximum LTV ratio is capped at of 75% LTV for the first loan (i.e. if you have no outstanding home loans). Of the remaining 25%, 5% must be paid in cash. The remaining 20% can be paid using a combination of cash or your CPF-OA savings.
The LTV for bank loans was tightened in July 2018
The bank loan LTV used to be 80%, but it was tightened to 75% in July 2018 as one of the implemented measures to cool the property market. Read more about the 2018 property cooling measure here.
Loan-to-Value Ratio (LTV): HDB Housing Loan vs Bank Loan
The below infographic gives an overview of the latest updated LTV ratio for buying property in Singapore. Take note that the LTV ratio is also subject to loan tenure, as well as the age of the borrower upon the completion of the tenure. If you're taking your second or third bank mortgage, tighter LTVs also apply.
Note: You may not always qualify for the maximum Loan-to-Value Ratio (LTV)
It’s important to note that HDB/banks do not have an obligation to loan you the full LTV. They can opt to approve a lower LTV limit, or reject your application outright. If that's happened to you, here are some possible reasons:
1. The remaining lease of the property may be too low
Leasehold properties with 30 to 40 years left on their lease may incur a LTV ratio of 60%. The reason: banks feel that properties with dwindling lease constitute a less satisfactory collateral because of lowering market value towards the end of a lease.
You may also find that you cannot use your CPF funds to pay for such properties.
(There are special cases whereby properties are purchased through monthly payments, or still obtaining a loan despite the age of the property. These are usually cases whereby the buyer has managed to negotiate a private contract with the seller via a law firm. Alternatively, it may be a special loan by a private bank to a wealthy buyer - who also has a good credit score.)
2. The property location and condition is poor
Based on the location and state of your property, the LTV cap can be lowered significantly. Properties that are based abroad tend to get lower LTV limits. Properties located in a red-light district may also merit a lower LTV ratio.
The lender may check for lawsuits against properties too. Properties that are too run down or have major defects are also reasons to merit a lower LTV ratio.
3. Your age and loan tenure are too high
As illustrated by the infographic above, if the loan tenure on your property purchase extends past 65 years of age, the LTV ratio will be capped. And as long as the loan tenure exceeds 30 years, the LTV will be similarly capped.
If you’re thinking of taking out a home loan at 35, you have to repay your full amount before you turn 65 in order to enjoy a higher LTV ratio. This is why some buyers prefer to buy their second property as soon as they save up enough for one.
4. You have a bad credit score or rating
If you have a history of late payments and defaults on loans, you might be flagged as a credit risk. Banks may choose to offer you a lower LTV than the allowable limit, such as 60% instead of 75% for a 1st bank loan.
Read about your credit report, and why it's important for your home loan in this article: Credit Bureau Report Guide: Why a Good Credit Rating is Important for Your Home Loan
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