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TDSR rules meant for banks to practise prudence: Tharman

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The latest home loan rules that took effect on June 29 were not a fresh round of property cooling measures, said Deputy Prime Minister Tharman Shanmugaratnam at a community event yesterday.

Mr Tharman, who is also Minister of Finance, said that the new Total Debt Servicing Ratio (TDSR) Framework is a long-term rule that is meant to get banks to practise prudence.

The framework introduced by the Monetary Authority of Singapore (MAS) restricts banks from approving a home loan if an individual's monthly debt obligations, including other mortgages and car loans, exceed 60 per cent of his gross monthly income. Financial institutions would use a standardized method to compute TDSR and would apply medium-term interest rates of 3.5 per cent for housing loans and 4.5 per cent for non-residential property loans, or prevailing market interest rates, whichever is higher.

Mr Tharman said that Singaporeans should also remain conservative in their borrowings and added that interest rates would certainly rise.

The rules also refined the existing loan-to-value limits on housing loans, which Mr Tharman said were necessary to close loopholes.

Those refinements required borrowers named on the property loan to be considered owners of the residential property for which the loan is taken.

"The second part of the rules was to plug some loopholes in the rules for the loan-to-value ratio that were already announced earlier - the tighter loan-to-value ratio for second properties especially. We want to make sure that it's not so easy to get around the rules. That was the purpose of the second set of measures, but it wasn't a new round of cooling measures," he said.

Credit from Business Times - 8 July 2013
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