The government’s new set of measures to curb property prices could hit banks in Singapore due to extra checks needed for mortgage applicants. However, the impact on mortgage growth is likely to be small, according to a check done by The Business Times.
Helen Neo, Maybank Singapore’s head of consumer banking, said that “banks will certainly run into problems for any pre-existing loans which may have been approved but not drawn down yet, and housing loans not registered at the credit bureau.”
The government announced that from August 30, homebuyers with outstanding mortgages will have to pay cash upfront for a new property, and can only borrow 70 percent of the property’s value, down from the previous 80 percent.
Home loans have been the biggest driver of loan growth for Singapore banks throughout the economic crisis and since the recovery started.
According to data from the Monetary Authority of Singapore, total home loans increased 22 percent to $101.1 billion over the year to the end of June. Property-related loans, including loans to the construction and building sector, made up 50.5 percent or $149.7 billion of the entire banks’ loans.
“I don’t think you’ll see a collapse in loan growth” because of the new measures, said a banking analyst.
“Housing loan growth is more correlated to the completions of properties – that’s when the loans are drawn down. We’ve seen record home sales in 2007, 2009 and so far this year; those would underpin completions in the medium term.”
Ms. Neo noted that the new measures could also hit people planning to purchase a new home to live in, if they are still paying for their previous mortgage. Such homebuyers are no longer eligible to borrow over 70 percent of the home’s value even if they intend to stay in it.
Phang Lah Hwa, head of consumer secured lending at OCBC Bank, said they “have seen an increase in the number of loan applications,” borrowing more than 70 percent of the property value. She added that most of their applications are for owner occupation, but they have also seen “an increase in the number of loan applicants for investment purposes compared to a year ago.”
The new rules also mean that more time is needed to process loan applications. Aside from checking on the borrower’s credit record with Credit Bureau, banks must also check with the HDB to see if the applicant has an outstanding loan.
Ms. Neo added that if “HDB is willing to enrol with the Credit Bureau as a member, the checks can be made more efficient in the processing of applications.”