Debt ratio curbs 'won't be widened to non-property loans'

Debt ratio curbs 'won't be widened to non-property loans'
PHOTO: Debt ratio curbs 'won't be widened to non-property loans'

SINGAPORE - The new total debt servicing ratio (TDSR) for property credit will not be extended to other types of loans any time soon, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.

After all, only about 5 per cent to 10 per cent of borrowers here are at risk of over-leveraging on their property purchases, he said.

"We don't intend to, any time soon, extend the TDSR to other types of loans, but it is really for the banks to factor it into their own internal assessments," Mr Tharman, who is also the Finance Minister, said on the sidelines of a Jurong grassroots event.

"Supervision is more useful when it comes to the broad range of loans, not just more and more rules," he said.

The TDSR framework, which was introduced last month for property loans, takes into account a borrower's total repayments such as mortgages, and car and student loans.

Banks have to check and ensure that the total monthly debt repayments of those taking up property loans do not exceed 60 per cent of their gross monthly income.

The Monetary Authority of Singapore had said earlier this month that it was closely monitoring the lending practices of banks and data trends for non-property loans, and may consider applying the TDSR rules for other loan types if the need arose.

Mr Tharman said yesterday that he hoped the banks would, apart from following the rules strictly, do it in the "right spirit for other loans" as well.

Non-property loans typically make up a smaller portion of a household's overall debt burden compared to a mortgage, but some banks already consider a borrower's total debt for loans on potentially big-ticket purchases such as cars, for instance.

The minister also revealed that an estimated 5 per cent to 10 per cent of borrowers here were at risk of over-leveraging, likely because they were juggling two or more home loans at the same time.

These people are excited by the upswing of the market and are taking advantage of the low interest rates, but will be caught out when interest rates rise and property prices fall, he said.

If left unchecked, this could lead to a similar scenario as the one that was played out in the 1997 Asian financial crisis, when many buyers were forced to sell in the face of high interest rates.

"Property prices dropped monthly then, and every week, more and more homes were put on auctions," recalled Mr Nicholas Mak, SLP International's head of research.

Mr Tharman reiterated the fact that the TDSR was meant to be a long-term measure for financial prudence, while other instruments such as the loan-to-value limits were meant to cool the property market.

"It is not a science; we tried to calibrate it as well as we could. It has got a bit of bite, but it is not going to be something that impacts the current cycle in any strong way," he said.


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