In Singapore, before you apply for a housing loan from banks or any financial institution (FI), you need to understand the Loan-To-Value (LTV) limits that might affect you. The LTV limit determines the maximum housing loan amount you can borrow, which determines how much upfront cash or CPF fund you need to set aside before committing any Singapore property purchase.
On 5th of July 2018, MND, MAS and MOF jointly announced that the LTV limits would be tightened by 5%-points on all housing loans granted by financial institutions (FI), as part of a package of measures to cool the property market in Singapore and keep housing price increases in line with economic fundamentals.
On the 15th of December 2021, MND, MAS, and MOF jointly announced another round of cooling measures to promote continued housing affordability. The government also calibrated the private residential property to dampen broad-based demand, especially from those purchasing property their 2nd or subsequent properties for investment rather than owner-occupation. The measures were introduced to tighten financing conditions for both the HDB and private housing to encourage greater financial prudence. The Government will also be ramping up the supply for both private and public housing in 2022.
In a simpler term, the LTV limit means the loan amount as a percentage of the property’s value. For example, if your LTV limit is 75%, this means you can only borrow $750,000 from the bank for a property valued at $1,000,000.
In 16 Dec 2021, the government announced that the LTV limited for HDB flat will be lowered from 90% to 85% for HDB loan. In just 9.5 months later on 30 Sept 2022, the HDB loan LTV limited is further lowered from 85% to 80%.
So what are the 4 Factors Affecting Property Loan-To-Value (LTV) Limit Concerning You!
The four key factors that determine the LTV limits are: –
- Loan duration (Loan Tenure)
- Borrower(s) age
- Property type (HDB or Private property)
- Whether you have any existing housing loans
Loan duration (Loan Tenure)
In Singapore, the maximum loan tenure for a housing loan is capped at:
- 30 years for HDB flats. (If you are applying for a loan through HDB directly, the maximum loan tenure will be 25 years)
- 35 years for non-HDB properties.
Do note the following that will result in a lower LTV limit, which in turn increases the upfront fund needed to purchase a property in Singapore:
- For HDB flat, if the loan tenure is more than 25 years.
- For non-HDB properties, if the loan tenure is more than 30 years.
Borrower(s) Age
In determining the LTV limit, one of the factors is the borrower(s) age. The borrower(s) ‘ age plus the loan tenure duration is one of the key factors. If the sum of the borrower(s) age and the loan tenure cross above 65 years old, the LTV limit will be lowered, resulting in a lower housing loan amount granted, which increases the upfront fund needed to purchase a property in Singapore.
For joint borrowers, the income-weighted average age as their present age is used. The example below shows you how you can determine the income-weighted average age as it relates to your ability to repay the loan:
Assuming B1=Borrower 1, B2=Borrower 2
The income-weighted average age = (B1’s Age * B1’s gross monthly income / (B1’s gross monthly income + B2’s gross monthly income)) + (B2’s Age * B2’s gross monthly income / (B1’s gross monthly income + B2’s gross monthly income))
Since borrower age is one of the considering factors, the older borrowers might have a disadvantage compared to the younger borrower. This is one reason why we always encourage you to start young when investing in property in Singapore.
Let’s retake the above example.
Mr. Lim and his daughter Jenny each bought a condominium now. To borrow the maximum LTV of 75%. Mr. Lim only can take up to 15 years of loan tenure, which makes up to 65 years (50 years + 15-year loan tenure). This means that Mr. Lim might need to service a higher monthly installment as the loan tenure is shorter.
Since Jenny is 25 years old, she can take up to 30 years of loan tenure yet still enjoy the maximum Loan-to-Value of 75%. This means her monthly housing installment will be lower as compared to Mr. Lim.
Property Type
The type of property refers to an HDB flat or non-HDB flat (private property).
Typically for an HDB LTV Limit, it depends on whether you apply for your mortgage through HDB or Bank. Below is the difference:
- WEF from 16 Dec 2021, for an HDB flat using a housing board loan, the maximum HDB LTV Limit can be up to 85% of the valuation, subject to your total household income and HDB approval. The HDB Loan LTV Limit is further lowered to 80% on 30 Sept 2022.
- For a Bank loan, irregularly of HDB flat or private property residential property, the maximum HDB LTV Limit or Private Property, LTV Limit can be up to 75% of the valuation if it is your first mortgage loan and subject to your total household income and HDB or Bank approval.
Number of existing housing loan
Lastly, the number of housing loan(s) you are currently servicing is the most significant factor affecting the LTV limits you can borrow for your next housing loan. If you have structured your property portfolio through Property Wealth Planning, a high chance is that you are holding multiple properties now, which you might be affected by the lower LTV limits due to multiple housing loans.
The LTV limit table below summarizes Singapore’s residential property with effect from the 6th of July 2018. You can borrow the percent based on your age, loan tenure, type of property purchased, and the number of housing loans you are servicing now.
Case Study Example on Singapore Mortgage Loan Limit or Loan-to-Value (LTV) Limits
Assuming Mr & Mrs. Tan is 50 and 45 years old, respectively. Mr. Tan earned a gross monthly income of $5,000, which Mrs. Tan earned a gross monthly income of $6,000. This example will show the calculation of their income weighted average age for buying their first HDB or first private property based on loan tenure of 10 years and 20 years. You may refer to the above LTV Limits Summary Table for reference.
As a buyer(s), you should understand the fundamental of Loan-to-Value (LTV) and its limits based on the 4 factors to determine the maximum loan that you can take up and determine how much initial outlay you need to set aside for the property purchase. Always start young to enjoy your retirement early!
I hope the above example clears some of your minds about the Loan-to-Value (LTV) limits when buying a property in Singapore.
I welcome you for a friendly non-obligation discussion should you need a consultation about your first property purchase or subsequent property purchase in determining the LTV limits that might affect you and the workaround ways to get a higher LTV limit.
