Finally, the rules, which take effect today, demand that lenders consider a borrower’s total debt obligations, including other mortgages and loans for cars, before granting a new home loan.
Banks will not be able to approve a loan if the monthly repayments of a buyer’s total debt obligations exceed 60 per cent of his gross monthly income.
Take a property buyer who has a monthly income of $10,000 and debt obligations, including his car, credit card and other such loans, of $3,000.
If the new mortgage’s monthly repayment exceeds $3,000, that would bring his total repayments to over $6,000 – and total debt obligations to over 60 per cent.
Summary of New Framework
Total Debt Servicing Ratio (TDSR) framework to be used
- Consider monthly repayments of new loan and all other debt.
- Calculate new loan repayments using medium-term interest rate (3.5per cent for home loans) or prevailing interest rate, whichever is higher.
- Discount variable income and bonuses by at least 30 per cent.
- Discount financial assets if used in calculating income.
Loan-to-valuation rule changes
- Borrower of loan must be mortgagor of the home.
- If borrower fails to meet TDSR threshold, his guarantor to be included as co-borrower.
- Use income-weighted average age of joint borrowers in deciding loan tenure. For instance, if the father has a higher income than his son, it may mean an older average age and shorter loan tenure.