Here’s a flow chart to (hopefully) make things clearer for those still confused by the new ruling:
For refinancings, the only rule that is applicable is that the total tenure, from the time you first took out a mortgage on the property to the end of the refinanced loan, is limited to 35 years. Refinancings are not subject to the LTV requirements above. I believe that most outstanding loans are already within 35 years tenure, so there shouldn’t be much impact. This rule will mainly impact investors who continually leverage up on their property equity, which is a risk point that the government is keen to curb.
The last part of the new cooling measure pertains to non-individuals. LTVs for non-individuals was reduced to 40% from 50%. I don’t think this will have much impact on the market since corporate buying of residential property has already slowed to a crawl due to the 10% ABSD.
One of our readers recently bought a piece of property, and was worried about whether the new cooling measure would cause a price drop. In truth, no-one will be able to tell you with high degree of certainty how the market will move. I think there will probably be some impact, at least in the near term, but as Nat has expressed in her earlier article, the intention of the government is not to cause a drop in asset value, but rather to curb speculative bubbles from forming. Instead of worrying about whether the price will drop, I think it would be more constructive to think about how to keep the mortgage affordable and getting a good rental yield. Personally, if I got in before the curb, I would be happy that I was able to get a 35-year loan without penalties since the alternatives would be that either I put in more money, which impacts my return on cash or I have a shorter loan tenure, which increases my monthly mortgage payments.