First-time Buyers No Longer Able to Purchase New HDB Flats under New Loan-to-Value Limit and Other Parameters in Recent Property Cooling Measures
Ministry of National DevelopmentSpeakers
Summary
This question concerns Mr Leong Mun Wai’s inquiry regarding the number of first-time buyers affected by the 3% interest rate floor and the 80% Loan-to-Value (LTV) limit. Minister Desmond Lee responded that approximately eight in 10 buyers from 2021 would be unaffected because they do not maximize their housing loans. He noted that first-time buyers remain supported by Enhanced CPF Housing Grants of up to $80,000 for new flats or $160,000 for resale units. These cooling measures are designed to encourage prudent borrowing and protect households from overextending themselves as interest rates rise. By implementing higher floor rates and lower LTV limits, the government ensures that property loans remain sustainable long-term financial commitments for Singaporeans.
Transcript
40 Mr Leong Mun Wai asked the Minister for National Development that in view of the new measures to cool the property market, what is the estimated number of first-time HDB flat buyers in 2022 who were able to purchase a flat under the previous stress test rate and Loan-to-Value limit but who will no longer be able to do so under the new measures.
Mr Desmond Lee: In September 2022, the Government introduced an interest rate floor of 3% per annum for the Housing and Development Board (HDB) to compute the eligible housing loan amount for flat buyers taking a HDB loan, and lowered the Loan-to-Value (LTV) limit for HDB housing loans from 85% to 80%. These two measures are implemented to protect Singaporeans by encouraging prudent borrowing amidst the rising interest rate environment.
Flat buyers' housing budget and ability to purchase a flat depends on various factors, such as their eligibility for the Central Provident Fund (CPF) housing grants and their CPF and cash savings, and not just the maximum loan amount they are eligible for.
Most flat buyers will not be affected by the introduction of the interest rate floor as they do not take up the maximum housing loan amount. As an illustration, about eight in 10 flat buyers in 2021 would not have been affected by the change in the interest rate floor and lower LTV limit. In addition, first-time buyers, especially lower-income households, will generally be less affected by the lower LTV limit. First-timer flat buyers can enjoy the Enhanced CPF Housing Grant of up to $80,000, in addition to the generous subsidies in the new flat price, or total grants of up to $160,000 if they choose to buy a resale flat. They can use the grants, as well as their CPF and cash savings, to pay for their flat purchase, before taking up a housing loan.
These measures are necessary as property loans are long-term commitments and often a household's largest liability. The higher floor rates and lower LTV limit ensure that today's borrowers take loans that reflect the likelihood of rising interest rates and avoid overstretching themselves.