MAS Notice 645 Total Debt Servicing Ratio & MAS Notice 632 Residential Property Loan With effect from 29 June 2013, Saturday

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1 MAS Notice 645 Total Debt Servicing Ratio & MAS Notice 632 Residential Property Loan With effect from 29 June 2013, Saturday (Condensed presentation deck for external parties) 1

2 Highlights of new measures effective 29 June Consider monthly repayments of new loan and all other debts. 2. Applies to property loans for Singapore & overseas residential/nonresidential properties, to individuals or entities set up solely to purchase property; 3. Total debt servicing ratio (TDSR) is capped at 60%. 4. Calculate new loan repayments using min 3.5% for residential property loans; 5. All borrowers to be mortgagors (OTP on or after 29 Jun 13); 6. Guarantors to be co-borrowers; 7. For joint borrowings, the income-weighted average age of borrowers to be used; 8. Haircut of at least 30% on variable income & rental; and 9. Haircut on the value of financial assets if used in calculating income. 2

3 Exclusion Application Applications of MAS Notice 645 & MAS Notice 632 Notice 645 Total Debt Servicing Ratio Notice 632 Residential Property Loan TDSR for loan eligibility Properties in Singapore & overseas Residential, commercial, industrial (including land, construction loan) Individuals & entities set up specifically to purchase properties LTV, tenor, income-weighted average age, borrower to be mortgagor Singapore residential properties Individuals and entities purchasing properties. Bridging Loan up to 6 months Credit facility secured by pool of collateral including property where the market value of the subject property is < 50% of the pool of collateral Credit facility granted by a bank to a Property Developer to purchase residential property for development. 3

4 Instalment on subject loan 3.5% for HL Existing: Statement Apportion to income contribution for existing joint debts (evidence of joint s income) Min Payment in latest stmt or interest on full limit Outstanding in latest stmt or interest on full credit limit 20% of credit facilities (including corporate) Excluded MI of existing property if buying HDB/EC from developer 1st resi pty to be sold No o/s facility on any pty except HL on 1 st pty to be sold No other pty singly or jointly Instalment (Single) Existing Instalment (Joint) Credit Card (unsecured revolving) Secured Revolving Guarantor HDB or EC fr Dev Total Debt Servicing Ratio for PHL & HDB 60% Fixed Variable Fixed + Variable Rental Assets (unpledged) 100% monthly income exclude employer CPF 70% average last 12 months exc. employer CPF; OR 70% NOA divided by % Fixed + 70% Variable OR 100% NOA divided by 12 70% if borrower is the landlord. Submit stamped tenancy agreement with min 6 months % deduction on value divide 48 % Deduction Pledge 4yr for subject loan Unpledged / Pledge < 4 yr SGD Deposit 0% 70% Non Pty Asset 30% 70%

5 Subject loan: Interest at 3.5% for residential loan Existing Pty Loans: Instalment in statement Instalment (Single) Apportion to income contribution of existing Property Loan (evidence of joint borrower s income) Existing Instalment (Joint) Exclude instalment on existing HDB if 1 residential pty to be sold No o/s facility on any pty except HL on pty to be sold No other pty singly or jointly HDB Purchase Mortgage Servicing Ratio for HDB HDB Refinancing exc from MSR 30% cap OTP prior 12 Jan 13 Only property Occupied by borrower No facility on other pty 30% Fixed Variable Fixed + Variable Rental Assets (unpledged) 100% monthly income exclude employer CPF 70% average last 12 months exc. employer CPF; OR 70% NOA divided by % Fixed + 70% Variable OR 100% NOA divided by 12 70% if borrower is the landlord. Submit stamped tenancy agreement with min 6 months % deduction on value divide 48 % Deduction Pledge 4yr for subject loan Unpledged / Pledge < 4 yr SGD Deposit 0% 70% Non Pty Asset 30% 70%

6 Exclusion Application Applications of MAS Notice 645 & MAS Notice 632 Notice 645 Total Debt Servicing Ratio Notice 632 Residential Property Loan TDSR for loan eligibility Properties in Singapore & overseas Residential, commercial, industrial (including land, construction loan) Individuals & entities set up specifically to purchase properties LTV, tenor, income-weighted average age, borrower to be mortgagor Singapore residential properties Individuals and entities purchasing properties. Bridging Loan up to 6 months Credit facility secured by pool of collateral including property where the market value of the subject property is < 50% of the pool of collateral Credit facility granted by a bank to a Property Developer to purchase residential property for development. 6

7 Income weighted average age (IWAA) is computed for joint borrowings in order to determine tenure (guided by MAS 632) Outcome Income- Weighted Average Age (IWAA) Loan Tenure Please refer to MAS 632 LTV chart (next slide) Income of Younger Borrower > Income of Older Borrower IWAA is lower Loan tenure is longer A age 30 earns $7,000 pm B age 50 earns $3,000 pm IWAA = (30 x $7K) + (50 x $3K) $7K + $3K = 36 years Max Tenure = 35 yrs (60% LTV) Max age of 75 years less IWAA, capped at 35 years. As = 39 is higher than cap, max is 35 years Tenure for 80% LTV = 29 yrs Tenure 30 years & < age 65 on maturity, i.e. tenure is = 29 years Income of Younger Borrower < Income of Older Borrower IWAA is higher Loan tenure is shorter A age 30 earns $3,000 pm B age 50 earns $7,000 pm IWAA = (30 x $3K) + (50 x $7K) $3K + $7K = 44 years Max Tenure = 31 Years (60% LTV) Max age of 75 years less IWAA, capped at 35 years. As = 31 is lower than cap, max is 31 years Tenure for 80% LTV = 21 years Tenure 30 years & < age 65 on maturity, i.e. tenure is = 21 years 7

8 No change to LTV rules under MAS 632 for Singapore Properties for New Purchase w.e.f. 12 Jan 13 (OTP/S&P Date) No of Home Loans including this application 1st Home Loan 2nd Home Loan 3 rd & sub. Home Loan Loan Tenure Up to 30 Yrs 31 to 35 Yrs Up to 30 Yrs 31 to 35 Yrs Up to 30 Yrs 31 to 35 Yrs Sum of Tenure & Age of Borrower (at application) 65 yrs > 65 yrs 65 yrs > 65 yrs 65 yrs > 65 yrs Loan- To-Value 80% 60% 60% 50% 30% 30% 40% 20% 20% Cash Down Payment 5% 10% 10% 25% 25% 25% 25% 25% 25% Note: LTV for corporate entities is 20% 8

9 Every $100K loan or $125K house price requires $750 monthly income (max 80% LTV for 30 years tenure) House Price Loan Amount Monthly Income $ 125,000 $ 100,000 $ 750 $ 750,000 $ 600,000 Every $ 4,500 $100K loan +$750 income $ 1,000,000 $ 800,000 $ 6,000 $ 1,250,000 $ 1,000,000 $ 7,500 $ 1,500,000 $ 1,200,000 $ 9,000 9

10 $1000 debt requires additional $1,670 monthly income to support the commitment. Every $100K deposits will reduce monthly income required by $625. House Price Loan Amount Monthly Income (30 Yrs) Monthly Income with $1000 Debt Monthly Income with $1K Debt + $100K Deposits* $125,000 $100,000 $750 $2,420 $1,795 $750,000 $600,000 $4,500 $6,160 $5,535 $1,000,000 $800,000 $6,000 $7,660 $7,035 $1,250,000 $1,000,000 $7,500 $9,160 $8,535 $1,500,000 $1,200,000 $9,000 $10,650 $10,025 * Deposits placed with a Singapore Bank and must show evidence of funds prior to the first loan drawdown (latest bank statement prior to solicitor s advice to drawdown) 10

11 Illustration No 1: For a first time private property buyer with average household income of $10K and no debts, the buyer can afford property priced 8% lower than before the TDSR rules. Before After Household Income (S$) 10,000 10,000 Max monthly repayment with 60% TDSR 6,000 6,000 1 st Property Buyer, Max LTV 80% Interest rate 2.80% 3.50% Tenure (years) Max loan amount on $6K monthly repayment 1,460,225 1,336,165 Max 1 st property value 1,825,285 1,670,210 (-8%) 11

12 Illustration No 2: For a 2 nd time property buyer with an existing home loan, the max property price he can afford is 8% less than prior to the new rules Before After Household Income (S$) 10,000 10,000 Max monthly repayment with 60% TDSR 6,000 6,000 Existing Home Loan Loan Amount 800, ,000 Interest Rate 1.30% 1.30% Tenure (years) Monthly Repayment 2,685 2,685 2 nd Property Buyer, Max LTV 50% Interest rate 2.80% 3.50% Tenure (years) Max loan amount with existing HL $800K HL 806, ,270 Max 2 nd property value 1,613,631 1,476,539 (-8%) 12

13 Disclaimer The information provided herein is intended for general information and discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from an independent financial and legal adviser regarding the information provided herein taking into account your specific objectives, financial situation or particular needs before you make a commitment to purchase any property and/or borrow from any entity or institution to finance the purchase of the property. This does not constitute an offer or solicitation to provide loan or financing to any particular person or to enter into a transaction. No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets or markets. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific entity, authority, area, figures, property or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. This presentation and its contents are considered proprietary information and may not be reproduced or disseminated in whole or in part without OCBC Bank s written consent. 13