HAS the sub-prime loan crisis in the US led to a more cautious approach to housing loans by banks in Singapore?

In a bid to avoid mistakes that sent the American banking industry into a tailspin, Singapore banks have tightened their criteria for approving housing loans, executives who work in the industry told The New Paper.

Security guard Ali (not his real name), for example, failed to secure a housing loan despite having more than $100,000 in his and his wife's CPF ordinary accounts, a salary of $2,200 a month and a guarantee from his brother.

They want a $200,000 loan to buy a $300,000 four-room HDB flat in Pasir Ris for their family of five but their application has been rejected by four banks here.

He said: 'I am in a dilemma because because banks are tightening their lending criteria to prevent the US sub-prime crisis from happening here.'

The reason the banks gave when they called him up to reject his loan application, said Mr Ali, 44, was 'global economic problems'.

Sharp contrast

The current climate is in sharp contrast to the recent but short property boom last year.

Then banks approved loans even to those who did not meet the minimum criteria, such as paying the upfront 20 per cent purchase price.

Said a mortgage broker: 'Banks used to be more relaxed with the loans because if you cannot pay up, they are happy to seize and auction off your property.

'But now, if all investors are hit, which bank will want to be stuck with a property that they will have problems selling?'

In Mr Ali's case, he and his wife are no longer eligible for a HDB loan because he had applied for a loan from HDB before with his previous wife. His current wife had also applied for HDB loans twice before.

The father of a 9-year-old son and a pair of twins aged 17 said he has one credit card from POSB, but pays his bills on time. He is also not servicing any loans.

Even when his brother became the guarantor, Mr Ali's application was rejected.

Mr Ali's 51-year-old brother, a taxi driver, has a fully paid-up five-room flat in Pasir Ris.

He claims he also has 'substantial' savings but declined to elaborate.

Mr Ali's brother said: 'Still, nothing was offered to my brother at all, not even a 70 per cent loan. I cannot understand why the bank does not want my business.'

Mr Ali is not alone in his predicament.

Top property agent Ivy Lee said that a 'handful' of her clients (less than 10) are having difficulties securing 80 per cent bank loans.

Her clients need an 80 per cent loan from the bank to buy homes after forking out 10 per cent of the price in cash and are getting the other 10 per cent from their CPF accounts.

Ms Lee, the chief executive officer of Ivy Lee Realty, said: 'Around two months ago, banks became more stringent and some of my clients were told that they could not be given the maximum loan, and (banks) offered them only 70 or 75 per cent loans instead.

'Previously, I never had such problems of the clients coming back to me saying that they cannot get their housing loans.'

When The New Paper contacted banks, they were vague about what seems to be a tightening of credit.

Mr Dennis Khoo, the general manager of lending at Standard Chartered Bank in Singapore, said: 'Customers with good credit history will find it equally easy to get a loan. It is still business as usual.'

Mr Kevin Lam, the head of personal financial services at United Overseas Bank's loans division, said: 'UOB has always taken a prudent approach in its consumer credit assessment process regardless of market conditions.'

Generally, a housing loan application is assessed based on checks on the borrower's employment, income, credit records, property price and valuation, and the loan amount, said Mr Lam.

So what can Mr Ali do?

Waiting

He is waiting for the housing market to cool before he tries to buy a flat again.

Meanwhile, his family is living with his youngest brother's family in a four-room flat.

He said: 'There are 10 of us squeezed into one flat. I can tolerate for a few more months, but my wife wants to move out urgently.

'If we cannot wait until HDB prices drop, we may have to get a three-room flat instead. We must be flexible until we can afford to upgrade.'

What banks look for in borrowers

What do banks take into consideration before deciding to grant you a housing loan? The New Paper talks to bank mortgage specialists to find out more.

1. AGE

The maximum tenure a 60-year-old can get in some banks is 15 years. It will get harder to secure loans the older you are because a longer tenure would allow you to pay in smaller instalments.

2. INCOME

• Salaried employees: CPF statement or payslip, a minimum income of $1,200 a month.
• Self-employed: Two years' income tax assessments and earn at least $2,500 a month.

3. GUARANTOR

If a borrower's income is insufficient, a guarantor may help to secure up to 80 per cent of the loan.

4. CREDIT RECORDS

Those who have defaulted payments in any loan in the last six months are likely to face problems in getting a property loan.

5. THE PROPERTY

Some properties are considered unacceptable collateral to banks.

This article was first published in The New Paper on October 18, 2008.