What Does TDSR Imply for Borrowers?
The Total Debt Servicing Ratio (TDSR) is a measure designed to assess whether a borrower is already in too much debt or not before approval of the loan.
What it does is it indicates the percentage of gross income already spent on payments related to housing, and how much of your income is available to pay off your loan.
Typically, a less than 40% ratio is acceptable, but the highest current TDSR allowed is 60%.
This means that in order to be accepted by a financial institution for a home loan, all of your loans (housing loans, student loans, credit card debts, car loans, personal loans) cannot exceed 60% of your income.
The Total Debt Servicing Ratio measure was announced by the MAS (Monetary Authority of Singapore) in response to the rising number of Singaporeans using proxies to buy property (for instance, relatives or children) in order to go around the cooling measures.
This measure has been taken in order to prevent cases of potential home buyers borrowing more than they can pay.
The TDSR will help financial institutions to basically strengthen underwriting practices, but also encourage financial accountability and prudence among home buyers.
It will also provide a solid basis for assessment of the debt servicing ability of potential borrowers.
The TDSR framework will be applicable to loans for the purchase of practically all types of property, loans secured on property, and refinancing of such loans.
Financial institutions will be required to compute the TDSR consistently, using a standardized methodology, and they will also be required to obtain correct and relevant documentation of a borrower's debt obligations for the computing of the TDSR.
Any property loan exceeding the 60% TDSR threshold is considered imprudent and will therefore not be granted.
The current 60% threshold is to be monitored and reviewed over time, in the event that it should be changed in the future.
Financial institutions apply a specified medium-term interest rate to the property loan on the prevailing market interest rate when establishing the Total Debt Servicing Ratio.
It is essential to know that a cut of at least 30% will be applied to all variable income and rental income.
One possible outcome of the TDSR is encouraging home buyers to choose longer loan periods in order to avoid exceeding the 60% threshold, as long as it does not affect the LTV.
This is a positive aspect for the financial institutions, because it means that on the long run, more interest will be paid.
Moreover, the TDSR framework does not involve any changes made to the Loan-to-Value (LTV) limits on housing loans, which are currently temporary and up for reviewing, according to the state of the property market.
What it does is it indicates the percentage of gross income already spent on payments related to housing, and how much of your income is available to pay off your loan.
Typically, a less than 40% ratio is acceptable, but the highest current TDSR allowed is 60%.
This means that in order to be accepted by a financial institution for a home loan, all of your loans (housing loans, student loans, credit card debts, car loans, personal loans) cannot exceed 60% of your income.
The Total Debt Servicing Ratio measure was announced by the MAS (Monetary Authority of Singapore) in response to the rising number of Singaporeans using proxies to buy property (for instance, relatives or children) in order to go around the cooling measures.
This measure has been taken in order to prevent cases of potential home buyers borrowing more than they can pay.
The TDSR will help financial institutions to basically strengthen underwriting practices, but also encourage financial accountability and prudence among home buyers.
It will also provide a solid basis for assessment of the debt servicing ability of potential borrowers.
The TDSR framework will be applicable to loans for the purchase of practically all types of property, loans secured on property, and refinancing of such loans.
Financial institutions will be required to compute the TDSR consistently, using a standardized methodology, and they will also be required to obtain correct and relevant documentation of a borrower's debt obligations for the computing of the TDSR.
Any property loan exceeding the 60% TDSR threshold is considered imprudent and will therefore not be granted.
The current 60% threshold is to be monitored and reviewed over time, in the event that it should be changed in the future.
Financial institutions apply a specified medium-term interest rate to the property loan on the prevailing market interest rate when establishing the Total Debt Servicing Ratio.
It is essential to know that a cut of at least 30% will be applied to all variable income and rental income.
One possible outcome of the TDSR is encouraging home buyers to choose longer loan periods in order to avoid exceeding the 60% threshold, as long as it does not affect the LTV.
This is a positive aspect for the financial institutions, because it means that on the long run, more interest will be paid.
Moreover, the TDSR framework does not involve any changes made to the Loan-to-Value (LTV) limits on housing loans, which are currently temporary and up for reviewing, according to the state of the property market.
