Total Debt Service Ratio (TDSR)
A lot of property buyers are still clueless about what Total Debt Service Ratio (TDSR) actually is and are totally unaware of its impact on their next property purchase. Whether it is buying an upcoming Singapore new launch condo, or a resale condo, the TDSR is important for potential property buyers as it determines the size and type of property that the buyers can consider. With the introduction of TDSR, more likely there will be a trend shift and buyers might want to focus their attention on smaller units as they are more affordable.
The TDSR framework was introduced by the Monetary Authority of Singapore (MAS) and brought into effect from 29th June 2013. TDSR applies to property loans from Singapore banks and approved Financial Institutions (FIs), concessionary loans from HDB are exempted from it. The main intention of bringing in the TDSR framework is to prevent homebuyers from over-borrowing and ended up falling into a debt spiral. The TDSR framework requires the lenders to take into consideration the monthly repayments on all loans (car loans, tuition loans, credit card balances and other such loans) undertaken by the borrower and these total monthly repayments cannot exceed 60 percent of the borrower’s gross monthly income.
In short, it simply means that the loan will less likely be approved if
Total Obligation Debt / Gross Month Income > 60%
For borrowers who have variable monthly incomes (self-employed, commission-based salary, etc), take note that your TDSR will be calculated based on 70% of your gross month income. The TDSR threshold will also apply to property owners who are refinancing their property loan as well. However, knowing that it might be hard-hitting for property owners to instantly “right-size” their loans, MAS has made some exemption rules for existing owners who purchased their properties before the introduction of the TDSR framework (prior to 29th June 2013).
For Properties which are Owner-Occupied
Property owner will be exempted from the 60% threshold when refinancing for his/her property if
(i) he/she meets the FI’s credit assessment criteria;
(ii) he/she is occupying the property.
For Properties which are Non Owner-Occupied
Property owner who is not staying in the property will be granted refinancing facility and be exempted from the 60% threshold if
(i) he/she meets the FI’s credit assessment criteria;
(ii) he/she commits to a debt reduction plan; and
(iii) application date of the refinancing is done on or before 30th June 2017.
For HDB Flat or Executive Condominium (EC)
For HDB flat or EC Owner who applies for housing loan from FIs, the FIs may exclude the monthly repayment instalment in respect of the borrower ‘s outstanding obligation debt for an existing Residential Property, in computing the TDSR. Nonetheless, the borrower will have to fulfill the following conditions:
(i) this is borrower’s only residential property and for which he will be taking steps to sell it away;
(ii) the borrower has an outstanding loan for the purchase of the existing Residential Property or the re-financing of such a credit facility;
(iii) no outstanding credit facility for the purchase of other property.
Reference http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financial%20Stability/Regulations%20Guidance%20and%20Licensing/Commercial%20Banks/Regulations%20Guidance%20and%20Licensing/Guidelines/TDSR_Guidelines_Refin_10Feb14.pdf
