SINGAPORE - The Monetary Authority of Singapore (MAS) announced on Friday a new Total Debt Servicing Ratio (TDSR) framework for all property loans granted by financial institutions (FIs) to individuals.
This will require FIs to take into consideration borrowers' other outstanding debt obligations when granting property loans, and is aimed at helping to strengthen credit underwriting practices and encourage financial prudence among borrowers.
MAS also said it will refine rules related to the application of the existing Loan-to-Value (LTV) limits on housing loans.
These refinements will seek to ensure the effectiveness of the LTV limits that were put in place to cool investment demand in the housing market, the authority said.
In particular, they aim to prevent circumvention of the tighter LTV limits on second and subsequent housing loans.
Introduction of TDSR framework
In a thematic inspection of banks' residential property loan portfolios in 2012, banks were found to have uneven practices with respect to the application of debt servicing ratios despite having sound policies for assessing borrowers.
The TDSR framework will allow FIs to assess the debt servicing ability of borrowers by taking into consideration their other outstanding debt obligations. FIs will be required to compute the TDSR, or the percentage of total monthly debt obligations to gross monthly income, on a consistent basis.
The coverage of the TDSR framework will be more comprehensive than FIs' current practice. The TDSR will apply to loans for the purchase of all types of property, loans secured on property, and the re-financing of all such loans.