Review of Home Equity Loan, TDSR Exemptions and Mitigating Delinquency Risks from Overseas Property Investments Speculation

Mr Yip Hon Weng asked the Prime Minister and Minister for Finance (a) what regulations govern the taking out of home equity loans (HEL) to prevent over-leveraging besides loan-to-value limits and Total Debt Servicing Ratio (TDSR) set by MAS; (b) whether MAS will review the exemptions that exclude some HELs from TDSR; and (c) what measures are in place to mitigate delinquency risks arising from using HELs for speculative overseas property investments.

Home equity loans, also termed Mortgage Equity Withdrawal Loans (MEWLs), are subject to the Monetary Authority of Singapore’s (MAS') residential property loan rules. Financial institutions (FIs) must ensure that total outstanding loans on a property, including the MEWL loan amount and any Central Provident Fund monies used for the initial property purchase, does not exceed the applicable loan-to-value (LTV) limit.

MEWLs are also generally subject to the Total Debt Servicing Ratio (TDSR), which caps borrowing based on income. In some cases, however, borrowers are exempt from TDSR if their total debt secured by the property, including any MEWLs, does not exceed 50% of the property's current market value. This exemption provides flexibility to homeowners who have substantially paid down their mortgage to take out loans to meet cash flow needs, while mitigating over-indebtedness.

In addition to complying with MAS' LTV and TDSR requirements, MAS expects FIs to perform a holistic credit assessment for loan applications. As part of their internal credit assessment, FIs must assess borrowers' ability to repay their loans, taking into account factors such as their income, financial assets and other loan obligations, to determine the appropriate loan amount and tenor for each borrower. FIs will also consider the strength and risks of the underlying collateral when determining the appropriate loan quantum. These safeguards encourage financial prudence amongst MEWL borrowers, even if these loans are used for more speculative investments.

We encourage consumers to exercise prudence in managing their finances, particularly when making major decisions, such as taking on MEWLs and purchasing overseas properties.