(Newswire.net — 21 August, 2013) Dhoby Ghaut, Singapore — The Monetary Authority of Singapore has launched a Total Debt Servicing Ratio (TDSR) framework, a regulation to ensure borrowers are not overleveraged. It is a standard that is applicable to all property loans granted by all financial institutions, who are the banks and even the private loan lenders. The TDSR is a calculation of the percentage of one’s income that can go into servicing credit loans and the current cap is at 60%. Thus, it means that the housing loan repayments after adding all other repayment obligations cannot exceed 60% of an income.
Every aspect in life has its pros and cons, just like how a coin has its two sides. With the TDSR framework, there is a standardization of TDSR across all financial institutions involved in the moneylending business, a usage of income-weighted average age to determine loan tenure, a haircut of 30% for all variable incomes, a rise in the interest rate benchmark for stress testing, greater stringency in the loan application process and guarantors are now included as joint-borrowers.
It is with much clarity that the regulations within the TDSR framework strongly impacted the property industry. It was reported that the new private home sales plunged a stunning 73% since June and the plunge was predicted to be held responsible by the new TDSR framework. Although the TDSR does not directly impact the cash loan moneylenders in the personal loan industry, the indirect impact on the loan industry is not small after all. The restriction has narrowed the opportunities for borrowers to obtain easy money loans from financial institutions, be it the banks or the private credit loan companies.
Mr Ng, a spokesperson for Credit Xtra commented, “As much as the TDSR framework is not directly targeted at our industry, it has resulted in borrowers not being able to obtain credit loans in large amount due to the 60% limit that the MAS has imposed on debts. For example, if someone were to earn a monthly income of $3000, the total debts that he or she can be in at the same time is only $1,800. It is almost impossible, not forgetting the increase in the prices of cars and COE and housing properties. Credit Xtra, as a professional credit loan company, have to exercise greater caution and professionalism in offering loan packages that will not cause our customers’ debts to exceed 60% of their income. That is when our flexibility comes in.”
However, the tumbling of the housing sales for the month of July should be taken with a pinch of salt as the information such as take-up rates was based on the projects launched. It was predicted that the August housing sales will also be dampened due to the superstitious beliefs of the Hungry Ghost Festival. The real impacts of the TDSR policy have to be weighed in October for a more accurate assessment. Every new policy benefits some and hurts some. It all depends on which side you are in.