Borrowers' risk profile gets lift from TDSR framework

THE risk profile of borrowers has improved with the introduction of the Total Debt Servicing Ratio (TDSR) framework a year ago, said the Monetary Authority of Singapore.

It noted that the proportion of borrowers with a loan-to-value ratio above 70 per cent has declined.

This segment comprised 77 per cent of mortgages issued in the second quarter of 2010 but the proportion has fallen to 66 per cent since 2012, MAS assistant managing director (policy, risk and surveillance) Wong Nai Seng told The Straits Times in an exclusive interview recently.

That simply means a greater proportion of mortgages is now being taken out by people putting 30 per cent or more as a down payment - which in turn means less debt to service.

Another measure also shows improvement.

The proportion of borrowers taking a second or subsequent housing loan has fallen sharply, from 30 per cent in 2011 to about 10 per cent. This suggests the proportion of potentially over-leveraged borrowers has fallen.

The TDSR framework sets a total debt servicing ratio of 60 per cent, which means a borrower's total monthly debt repayment is capped at 60 per cent of gross monthly income.

The rule, which took effect on June 29 last year, aims to encourage prudent lending among banks and prudent borrowing among consumers.

Its impact has been wide-ranging on the property market, with market observers noting that it has hit property developers hard while many potential buyers are unable to get loans.

Data for the first 10 months of the TDSR shows an average of $2.3 billion in new mortgages granted each month, down 40 per cent compared with the $4 billion in the six months prior to the framework's introduction.

Mr Wong said: "The TDSR is meant as a structural measure for the long term.

It aims to strengthen underwriting standards of lenders and also to encourage financial prudence among borrowers and does that by matching the size of the loan to the borrowers' payment (capacity) so they don't take on too much borrowings."

Even before the framework's introduction, banks had already adopted the concept of the debt servicing ratio in assessing whether to grant loans.

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