Banks must factor in deferred payment schemes when determining how much buyers can borrow, said the MAS.
The Monetary Authority of Singapore (MAS) has clarified that deferred payment schemes should be taken into account by banks when computing how much a private property buyer can borrow, reported The Straits Times.
The clarification comes as the scheme is being offered at various completed projects like OUE Twin Peaks.
Under this scheme, buyers can move into their new house after making a small down payment and exercising the option to purchase. They will then pay the remaining amount, usually through a loan, within a period of one to three years, depending on the rules of the developer.
Comparatively, buyers pay the full amount within eight to 10 weeks in standard purchases of completed properties.
The MAS, however, explained in a circular to banks last week that the deferred payment scheme should be considered as a benefit for the buyer; hence, should be taken into account when calculating a mortgage. As “the borrower can use the deferred amount for other purposes during the deferral period, for example, investing the deferred amount for a return… MAS considers this a benefit to the borrowers”, it said.
With this, the MAS has directed financial institutions to deduct these benefits from the acquisition price in computing the amount of a person’s housing loan. In fact, banks were provided with a formula to account for the value of the said benefits.
Under present loan rules, assuming an 80 percent loan-to-value ratio, a buyer can borrow $1.6 million for a $2 million house. But under the deferred payment scheme, and assuming that 90 percent of the acquisition price is deferred for one year, the buyer can only borrow $1,587,328, said the MAS.
It added that rental guarantees, in which developers give property buyers the certainty of rental income for a certain period of time, should also be considered as a benefit and should be similarly taken into account when calculating the loan amounts. This would apply, for instance, to Hilltops, where developer SC Global offers buyers a two-year rental guarantee.
According to an OCBC spokesman, home buyers should bear in mind that loans granted by banks will be based on the adjusted acquisition price or the price after deducting any benefit, discount or rebate.
Those buying under the deferred payment scheme “should be aware that their loan amounts will be reduced… (and) must be prepared for a bigger amount for down payment”, stated Tok Geok Peng, Executive Director of Secured Lending at DBS Bank.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
