Changes to the TDSR could be a precursor to further fine-tuning of the property measures.
The decision by the Monetary Authority of Singapore (MAS) to revise the refinancing rules under the Total Debt Servicing Ratio (TDSR) framework is seen as a favourable move by Credit Suisse, and a possible precursor to further revisions of other property cooling measures.
In a report, the financial institution said “the intention of the adjustments is to help borrowers refinance their existing property loans at lower interest rates and better manage their debt obligations”.
“We interpret this positively, as the government is willing to fine-tune measures to suit market needs and borrower feedback. The MAS estimated that 73 percent of outstanding housing loans are for owner-occupation as of Q3 2015, and five to 10 percent of households have debt-servicing ratios above 60 percent.”
The report added that this is a sign that the government is open to relaxing other curbs, even though the MAS stated that the new rules do not represent an easing of the cooling measures.
“Semantics aside, we believe the adjustments support our view that with the weakening macro outlook, further adjustments to property cooling measures would be one of the ranges of policies the government can use to combat a slowdown,” said Credit Suisse.
It noted that the Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty (SSD) are not an integral part of government tax receipts, comprising just two percent of total tax revenues.
“The government will likely want to preserve the element of surprise prior to any action, but we believe the market could start to price in an increasing probability of (their) removal moving forward,” noted Credit Suisse.
Under the new rules which took effect yesterday, borrowers who purchased houses for their own use after the implementation of the TDSR on 28 June 2013 will no longer be subject to the TDSR threshold of 60 percent or Mortgage Servicing Ratio (MSR) limit of 30 percent when they refinance their mortgages.
Previously, only owner-occupied properties bought before the implementation of the TDSR were exempted from the TDSR framework.
Furthermore, borrowers are now permitted to refinance their investment property loans above the TDSR threshold regardless of when they were purchased. However, they must commit to a debt reduction plan with their respective banks to repay at least three percent of the outstanding balance within three years, and fulfil the financial institution’s credit assessment.