PIE, AMK, CPF, ACS, NLB, ICA, LKY… if you’re a Singaporean or have lived here long enough, these acronyms would be part and parcel of your everyday vocabulary. That’s because Singapore is an acronym haven. We have acronyms for practically everything, so much so that the rare or newer ones could even stump a local.
Have you come across the acronym TDSR? What does it stand for?
TDSR and why it was introduced in Singapore
TDSR = To Do Simple Research?
Jokes aside, TDSR stands for Total Debt Servicing Ratio, and FYI, it’s not unique to Singapore. It’s a financial metric used by lenders to access whether or not to extend credit to a borrower, and it is used primarily in the mortgage industry.
In 2013, the MAS (Monetary Authority of Singapore) introduced TDSR here for a few key reasons:
- to ensure that borrowers do not borrow beyond their means
- to ensure that financial institutions lend responsibly
- to discourage property speculations
- to cool down the property market (i.e. to avoid a scenario where property prices sky-rocket indiscriminately)
The TDSR applies to both private and public properties, but if you intend to buy a public property (HDB or EC), you have to factor in the MSR as well. What is the MSR, you ask? Don’t fret, we’ll deal with that in the last part of this article. Note: If you’re really new to Singapore, HDB stands for Housing Development Board flats whereas EC refers to Executive Condominiums built by HDB.
TDSR and how it is calculated
The above simple formula sums up what the TDSR is. Take note that your total monthly debt obligations mean all your borrowings, which include your car loans, student loans, outstanding credit card payments, personal loans, other housing loans (if you’re a property investor) etc.
Back in 2013, the TDSR was 60%, but this has been revised down to 55% in December 2021. What this percentage simply means is: your total monthly borrowings should not be more than 55% of your gross monthly income. Ideally, it should not even be 55% but much less (i.e., anything between 40% and 50%). This is to ensure that you have a buffer for life’s emergencies.
Don’t meet the TDSR criteria? Follow some of our practical solutions
So what if your TDSR is 55% or more? Here are a few practical solutions that you may want to consider:
- Buy a cheaper property
- Pay a higher down payment
- Stretch your loan period
- Try to pay off your other debts first
- Use your other investment assets (stocks, bonds, foreign current deposits, gold, unit trusts etc.) to count towards your monthly income
Other factors that come into play
The TDSR doesn’t just take into account your total borrowings. It is also calculated with the following other criteria in mind.
Loan to Value (LTV) ratio
Here’s another mind-boggling financial jargon – LTV. Financial institutions want to ensure that they can recoup their money if borrowers fail to repay their debts. In Singapore, the LTV between an HDB loan and bank loan is different.
Loan to Value (LTV) ratio in Singapore
Difference in LTV between an HDB housing loan and bank loan
The LTV for an HDB Housing Loan is up to 85%
The HDB housing loan (applicable only for BTO, sale of balance flats, re-offer of balance flats, resale flat purchases) has a maximum Loan-to-Value (LTV) ratio of 85%. This means you can loan up to 85% of the purchase price/property value. The down payment can be made in cash, from your CPF ordinary account, or a combination of both. There is no minimum cash component.
Since you can only own one HDB flat (and hence an HDB housing loan) at any given time, this is the only LTV you need to know.
The LTV for Bank Loan is up to 75%
For a bank loan, the LTV ratio is capped at 75% for the first loan (i.e. if you have no outstanding home loans). Of the remaining 25%, 5% must be paid in cash and the balance 20% can be paid using a combination of cash and your CPF ordinary account savings.
Before July 2018, the LTV for bank loans used to be 80%. But it was tightened to 75% after the 2018 property cooling measures, and remained the same after the 2021 property cooling measures.
Loan tenure rules
Currently, the loan tenure is 30 and 35 years respectively for public and private properties in Singapore.
Stress-test interest rate
As you know, home loan interest rates fluctuate. So what if it increases to a value that is deemed high (currently 3.5%)? Can you still maintain your TDSR at 55% or below? If you can, that means you’ve passed the stress-test interest rate.
Variable income borrowers
Are you a salaried worker with a fixed monthly income or are you in the gig economy? If you are a gig worker (freelancer or self-employed), you are considered a riskier borrower because you have a variable income. For this group, lenders typically take into account only 70% of their total assessed income to factor in to the TDSR.
Guarantors and borrowers
It doesn’t matter if you have a guarantor or mortgager. In all mortgage contracts, there is no difference between guarantors, mortgagers and borrowers.
Joint borrowers
If you’re planning to jointly buy a property, then the TDSR will be calculated with these in mind:
- The aggregate gross monthly income of all the owners;
- The debt obligations of all the owners;
- The loan tenure (calculated based on the income-weighted average age of all the owners)
Some sample calculations
As you can see, not all borrowers have the same backgrounds; hence the TDSR calculation will surely differ. Below are sample calculations for three typical scenarios.
Scenario 1 (fixed income borrower)
Susan, aged 30, an accountant, has a fixed gross monthly income of $10,000. Currently, her total borrowings for her car, education loan, and credit cards come to $3,800 a month in debt repayment. Let’s do the math for Susan.
As Susan is eyeing a private property, her estimated private loan quantum is up to only $378,581 for a maximum of 30 years (see table).
If Susan wants to apply for a home loan, she can borrow $1,700 ($5,500 – $3,800) under current TDSR rules. Now, $1,700 is a very small sum in terms of housing loans. If Susan wants a bigger loan amount, she will have to take heed of some of the practical solutions we’ve discussed above.
Scenario 2 (fixed income joint applicants)
Marcus, aged 35, has a fixed monthly income of $5,700 and no debt obligations. He plans to buy a new house with his wife, Jaime, aged 32. Jaime has a fixed gross monthly income of $4,300 and also has no debt obligations. Let’s do the math for the couple.
The couple has a combine monthly income of $10,000 ($5,700 + $4,300).
Now, with a TDSR rate of 55%:
- Marcus and Jaime can borrow up to $1,224,822 under current TDSR rules (see table)
- This means they can buy a $1,633,096 property
Are you qualified for TDSR exemptions?
Some of you who have followed this article so far may be thinking if TDSR regulations apply to your case too.
Yes, there are always special cases, and you are deemed as one if you fall into one of the following four categories of property buyers.
Don’t worry, be happy! You could be the exception to the rule
You will be heartened to hear that, in these cases, you will be exempted from current TDSR rules.
- You are an existing borrower who’s refinancing the loan for the house you are living in (i.e. you are an owner-occupier)
- You are a property investor who’s refinancing your loan and who has committed to a debt reduction plan with your lender (minimum 3% of outstanding balance in less than 3 years) and you have met your lender’s credit assessment
- You are a property owner who intends to borrow cash against your property’s paid-up value (Mortgage equity withdrawal loans a.k.a. MWLs where the LTV of the loan is less than 50% when aggregated with other loans secured on the same property)
What about securing a loan over the current 55% threshold? Is that possible?
Absolutely! On condition that your reasons are clearly documented by the lender, the lender has subjected your case to enhanced credit evaluation, your lender has implemented a debt reduction plan with you, and your case has been reported to MAS.
No, not MSG, it’s MSR!
Under the MSR framework, your monthly loan payment for your HDB flat or EC must not be more than 30% of your household income.
So, even if your monthly total loan obligation is just 15% of your household income, this does not mean you can commit 40% (55% – 15%) of your household income to service your housing loan. It has exceeded the MSR cap of 30%.
So there, we have laid out all you need to know about TDSR in Singapore’s property-buying context. We hope this helps you in your property-buying journey!
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representatives.
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