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Home buyers borrowing less with tougher rules

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Home buyers are borrowing less as tougher lending guidelines contained in property cooling measures start to bite.

Mortgages with a loan-to-value (LTV) ratio of more than 80 per cent comprised 4.7 per cent of all  in the third quarter, down from 4.9 per cent in the same period last year.

This is the lowest since 2004 and is a sharp drop from the peak of 17 per cent in the third quarter of 2009, said the Monetary Authority of Singapore yesterday.

An LTV ratio of 80 means the buyer has borrowed 80 per cent of the home’s sale price.

The MAS’ Financial Stability Review noted yesterday that housing loan quality remains robust with the proportion of mortgages with negative equity – where the loan exceeds the property’s value – remaining negligible.

More than 70 per cent of mortgages are for owner-occupied homes, which tend to have a lower risk profile while non-performing loan (NPL) ratios for property-related lending have stayed low. However, these trends warrant close monitoring as NPLs are a key indicator of economic conditions and how borrowers are handling their repayment obligations, the MAS noted.

“Banks should be mindful… if the economic outlook worsens, especially if interest rates were to rise,” it said, warning that the sector “could face a pronounced increase in NPL ratios”.

But it is evident that the cooling measures have dampened the market with growth in property-related loans slowing.

Associate Professor Sing Tien Foo of the National University of Singapore’s department of real estate noted that home prices would have to plunge by more than 55 per cent for loans to get into negative equity.

“The slight increase, however, could be due to the high volume of new loans taken in the past year which tend to have higher LTV ratios,” he added.

“This could be due to the run up in prices which require buyers to take larger loans and the fact that interest rates remain low.”