With the latest curb in the property loans, the MAS has said it’s not measure to cool soaring prices. It’s said the rules will help strengthen credit underwriting practices of financial institutions and encourage financial prudence among borrowers. More information: Read ChannelNewsAsia.
Let us take a look at what it means:
1) Total debts obligations must not exceed 60% or his gross monthly income: This rules applies to properties only. .
2) Borrower need to declared as the owner of the property. This changes are to prevent borrowers from getting round tougher limits for second and subsequent housing loans.
The two main concern listed as above with the rest are minor changes (which I don’t intend to go into it) . Let us see what the changes will affect us as borrowers.
1)60% loan limits, it is applicable to the property loan only, all other debts that the debtors incurred, such as, renovation loan does not fall within the framework. In short, property owner-would-be should buy the property before getting other debt committment.
2) The borrowers need to declared as owners as property-would-be would try all means to bypass the LTV in order to secure higher loan amount when purchasing the property.
In short, the latest measures is a good start as MAS introduce the TDSR framework. It’s help to control our debts ratio before serious implication happens like retrenchment. But I would like to see more active MAS roles in other areas. Below are my suggestions to MAS to review and implement the followings:
1) TDSR should included in all loan applications not just property loan. The other applications like vehicle loan, short term loan, renovation loans. Although this can be review by MAS in different TDSR limits.
2) Credit card debts should included in the TDSR as this tend to be the main source of debts people incurred ( sometimes more than their 3 times their monthly gross incomes. MAS should implement that the credit card a person have in total should no be more than 3 times of the monthly gross income.
3) Vehicle Loan curb should be review as well, the current curb on the vehicle loan of 50% to 60% loan amount is sometimes less desirable to some people in need of the vehicle. Using the TDSR will be more a productive ways to curb the ever-increasing of COE prices. This at the same time able lower-income to apply for higher loan amount in vehicle loan within their TDSR.
Overall, the TDSR is a good start and more can be done with the recommendations given above will ensure that people will not overspend their expenditure.