The Monetary Authority of Singapore (MAS) has proposed an imposition of the same lower loan limits as the new real estate measures, in an effort to close a loophole on mortgage equity financing (MEF).
MAS proposed that MEF should be subject to the same loan-to-value (LTV) limit of 50 percent for non-individual borrowers, 60 percent for those with more than one loan and 80 percent for those with only one home loan.
Through this, MAS will severely narrow or cut off one route for buyers who have to raise more cash if they want to purchase a second or third property.
Presently, there is no LTV rule on MEF, though the majority of banks lend 70 percent to 80 percent of the property’s value.
Mortgage equity withdrawal loans (MWL) depend on the financial institutions’ (FI) credit assessment of borrowers, said MAS. “Practices among FIs vary in the LTV limits that are applied. As a prudential measure, MAS plans to require FIs to comply with regulatory LTV limits on MWLs. The purpose of this policy is to apply the regulatory LTV limits, not just to loans used to purchase residential property, but to loans secured on residential property as well,” it said.
When assessing the LTV computation, FIs should combine loans taken from moneylenders, it added.
MEF would have become more prevalent considering the sharp run-up in real estate prices. It is popular among borrowers, as banks charge a lower interest rate than unsecured loans.