Impact of Tightened Total Debt Servicing and Loan-to-value Ratios on First-time Buyers' Ability to Own Homes

Ms Jessica Tan Soon Neo asked the Minister for National Development what is the impact assessment on first-time home buyers with the recent tightening of the loan-to-value limit and total debt servicing ratio.

The adjustments to the Total Debt Servicing Ratio (TDSR) threshold and Loan-to-Value (LTV) ratio for HDB-granted loans were part of a package of cooling measures introduced in December last year to promote a sustainable property market, housing affordability and financial prudence.

Specifically, the tightened TDSR threshold aims to protect home buyers and ensure that they can continue to service their mortgages over the medium-term. This is because interest rates are likely to rise in 2022 and beyond, and a combination of rising property prices and higher interest rates will risk a significant increase in mortgage costs for buyers. The tighter TDSR threshold will encourage financial prudence among home buyers.

The vast majority of first-time home buyers are unlikely to be affected by the tightening of the TDSR threshold from 60% to 55%. HDB buyers are already subject to the stricter Mortgage Service Ratio (MSR) of 30%, which was not changed in the latest round of cooling measures. The tightened TDSR will encourage prospective first-time owners of private properties to right-size their intended purchases and mortgages, without overstretching themselves, so that they can better service their debt obligations.

The reduction in LTV limit for HDB housing loans from 90% to 85% is not expected to significantly affect first-timers taking an HDB loan. First-timers receive generous grants for their HDB flat purchase. They are also required to use all their CPF Ordinary Account savings, except for up to $20,000 per buyer, when they buy their flat. The significant grants, coupled with the use of CPF savings, reduce the loan amount that HDB first-timers need to take. In fact, more than nine out of 10 buyers who took an HDB housing loan in 2020 had an LTV of 85% or less and would not be affected by the reduction in LTV limit. This includes young couples, gig economy workers and the self-employed. Looking more specifically at households with an income of $7,000 or less, only 1% would be affected. For reference, $7,000 is half the current income ceiling of $14,000 for families to purchase a subsidised flat.

To complement the cooling measures which are targeted at moderating demand, we will increase the supply for private and public housing. We will ramp up BTO supply to launch up to 23,000 flats per year in 2022 and 2023, an increase of 35% from the 17,000 flats in 2021. For private housing, we will have around 2,800 units on the Confirmed List for the GLS programme in the first half of 2022, with another 3,700 units on the Reserve List. This is a 40% increase for the Confirmed List from the previous GLS Programme in the second half of 2021. We will step up supply even further if demand remains strong.

Taken together, the suite of demand and supply measures will help to support a stable and sustainable property market in the medium term, and ensure that housing remains affordable and accessible for all Singaporeans, especially for those planning to purchase their first home.