Many EC buyers have expressed dismay as the value of their loans have shrunk with the introduction of MSR. However, this trend may soon reverse, and lenders are likely to reconsider the terms of the loans. In this article, we discuss MOP, TDSR, and MSR as they pertain to EC financing.
EC MOP
If you’re looking to buy an EC but aren’t sure whether to go for a new build or MOP, there are two ways to get your money’s worth. One way is to go for a new build, but this will take at least five years, so you’ll have to wait a few years after the MOP is over before you can buy one. Another option is to purchase a resale unit, which means that the EC you’re buying has already been built. However, this can be a tricky process because of MSR, as you’ll need a bigger down payment than you’d have for a new build.
ECs are classified as intermediate property classes, which explains the plateauing of prices in this class. While they don’t require the same MOP as Private Property, they do come with some advantages over the latter, such as income ceilings and no MOP.
TDSR
The TDSR limits the amount of debt that any given person can incur each month. This rule is intended to discourage over-leveraging by Singaporeans. The MAS’s rationale was that people in Singapore are prone to over-expanding their finances due to the global financial crisis in 2008/9. However, the TDSR does not apply to all loans. For example, loans with higher LTVs are not subject to the TDSR rules.
The TDSR limits the amount of debt that a person can afford to pay each month to finance their housing. For example, if a person has a home loan of $1 million and is in default, the amount of debt that they can afford is only about 55% of their monthly income. In addition, people with variable incomes are only allowed to use up to 70% of their income for loan repayments. This means that if someone earns $7,000 a month, they can only use $1,695 of their income to pay back the mortgage and car loan.
MSR
The MSR market has been bullish for the past several months, but the current low rate environment has caused some servicers to pull back from their purchases. This has caused the price of escrow earning credits to decline sharply. The fear of further rate cuts has weighed on MSR value, which translates to lower loan values for servicers.
The MSR value is determined using a number of assumptions, and as a result, requires a great deal of judgment. A slight lapse in any one of these assumptions could have a significant impact on the estimated fair value of servicing rights.
EC financing
The mortgage servicing ratio is one of the major concerns for EC buyers, who are unable to finance their house through a HDB loan. This means they will have to pay a minimum of 25% cash downpayment when they purchase a home. A part of this amount can come from CPF OA savings. The rest will have to be paid in cash. However, ECs must also consider the MSR, which is now 30% of Marina Gardens Condo their total property value.
EC resale levy
The HDB resale levy scheme forces home owners to pay the tax when they sell their HDB flats. This means that those who purchased their first HDB flat with a CPF housing grant will have to pay at least $15k to $50k in resale levy when they sell their second HDB flat. This is done to maintain a fair allocation of public housing subsidies. This levy is waived if the EC is bought before or after 9 December 2013.
While the buyer of an EC must sell off their existing HDB property within 6 months, buyers of a private condominium can keep their existing HDB property for up to 10 years. However, the buyer of an EC must occupy the unit for at least five years before it can be sold off in the open market. The new MSR cap of 30% will further restrict the financing amount of an EC unit. The new MSR limit will also restrict the number of units that buyers can purchase with their MSR grant.
EC loan limit
When it comes to ECs, the loan limit has shrunk further with the introduction of the Mortgage Servicing Ratio (MSR). While it remains affordable for many Singaporeans, the MSR has significantly reduced the purchasing power of many Singaporeans. The loan limit for ECs is now 30 per cent.
A recent survey by the ECCU shows that between 10 and 80 bps of the MSR decline is being passed through to prime consumer mortgage rates. This indicates a clear transmission of lower interest rates to well-known clientele, although limited loan issuance has prevented the reductions from being reflected in official statistics.