SINGAPORE — To encourage financial prudence and mitigate an impending rise in interest rates, the Housing and Development Board (HDB) announced yesterday that it would cut, with immediate effect, the maximum loan tenure from 30 years to 25 years for its housing loans, and reduce the mortgage servicing ratio (MSR) limit from 35 per cent to 30 per cent of the borrower’s gross monthly salary.

HDB cuts loan tenure as interest rate hikes loom

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And with effect from today, financial institutions will shorten the maximum tenure of their new housing loans and re-financing facilities from 35 years to 30 years.

The measures were announced yesterday by the HDB as part of a raft of housing initiatives — including details of the enhanced Special CPF Housing Grant that was announced during the National Day Rally and a pilot launch of multi-generation flats — that sought to achieve various outcomes such as improving affordability and encouraging extended families to live together or in close proximity.

Permanent resident (PR) households will now also have to wait three years after obtaining their PR status before they can buy a resale flat — a move that National Development Minister Khaw Boon Wan described as a “judgment call” to allow PRs to sink roots here and save up before buying a flat. Previously, PR households could buy resale HDB flats as soon as they acquired PR status.

The objective of the revised mortgage loan terms was to “ensure financial prudence in purchase of public housing and discourage over-consumption”, the HDB and the Ministry of National Development said in a joint press release. This comes after the Monetary Authority of Singapore introduced a Total Debt Servicing Ratio (TDSR) framework about two months ago to cap total debt obligations at not more than 60 per cent of an individual’s gross monthly income.

It was only in January that the authorities announced that the MSR limits for housing loans from banks and the HDB would be capped at 30 per cent and 35 per cent of a flat buyer’s gross monthly income, respectively. With yesterday’s announcement, the MSR limit for HDB loans will be the same as for bank loans.

Speaking to reporters at Toa Payoh HDB Hub, Mr Khaw reiterated that the changes were meant to align HDB loan policy with that of the banks.

Referring to the current “unrealistic and artificial” interest rates, he said: “People think they can buy a bigger flat or a condo, when we all know that over the lifetime of the mortgage, interest rates won’t stay that low and then what? Then there will be trouble.”

Engineer Michael Foo, 28, and his wife are currently living with their parents in their Bukit Merah flat. He said the measures “put a damper” on the couple’s plans to buy a five-room Build-to-Order flat. They will try to save up more money in the coming years to buy their dream home, he said.

“I am all for financial prudence but I am not willing to give up the home that we want. Maybe that will change in time, if it truly gets beyond my reach, but for now, I believe a few years of scrimping and saving will eventually get us what we want,” he said.

Analysts whom TODAY spoke to reiterated that the latest measures were primarily targeted at “preparing the ground” for the looming interest rate hikes.

Nevertheless, Mr Nicholas Mak, Executive Director of Research and Consultancy at SLP International Property Consultants, said the measures, taken as a whole, would rein in the prices of resale HDB flats.

On the new waiting period for PR households, Ms Christine Li, Head of Research and Consultancy at OrangeTee, said: “Some PRs might then be pushed to the private residential market. (They) will also head to the rental market instead. Coupled with the lower MSR limit and shorter loan tenure, demand for resale flats will be further reduced, especially the larger HDB units.”

Mr Mak said it was akin to freezing a section of the demand for resale flats over the next three years.

Mr Colin Tan, Head of Research and Consultancy at Suntec Real Estate Consultants, noted that the supply of resale flats was still an issue, with many homeowners unwilling to sell in the current property climate.

“So, supply is just going to get smaller and smaller,” said Mr Tan.

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Move among initiatives to boost financial prudence, improve affordability of public housing

HDB cuts loan tenure as interest rate hikes loom

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