Singapore, 22 July 2002. The Government today announced changes to housing finance rules that are aimed at reinforcing prudent lending and use of Central Provident Fund (CPF) savings for property purchase.  The following changes apply to bank-originated housing loans.  Loans originated by HDB are unaffected.

 The Government has reversed the priority of claims over properties mortgaged for bank-originated housing loans. Instead of the CPF Board, banks and financial institutions will now hold the first charge for property purchases where the options to purchase are entered into on or after 1 Sep 2002 and loans that are refinanced after this date.

 Following the reversal of the priority of claims, the Government has also announced that for options to purchase residential property entered into on or after 1 Sep 2002, borrowers may now use their CPF savings for up to 10% of the property value as part of the 20% downpayment. The remaining 10% must be made out of cash from the borrower.  Thus, the total downpayment, including that made from CPF savings, for the purpose of purchasing residential property, remains at 20% of property value.  The financing limit for residential property purchases remains unchanged at 80% of the purchase price or valuation, whichever is lower.

In addition, the Government has decided that banks and financial institutions regulated by MAS be allowed to provide loans to HDB flat buyers from 1 Jan 2003.  The cash downpayment for these loans will initially be 0% for purchases made between 1 Jan 2003 and 31 Dec 2003. Thereafter the cash downpayment will increase by 2% a year until it reaches 10% by 1 Jan 2008.

MAS's prudential standards for housing finance remain unchanged. The 80% financing limit for property purchases has served as a good prudential measure and will continue to apply.  Whilst allowing for CPF savings to be used for part of the initial downpayment would increase affordability of housing, banks and financial institutions should continue to remain prudent in their lending practices and carefully assess a borrower's credit risk profile before granting a housing loan. They should also factor in the revised withdrawal limits on the usage of CPF funds to service housing loans and provide sound financing advice to their customers.

MAS will issue a revised Housing Loan Directive shortly and will work with banks and financial institutions to ensure that the revised policy is implemented in an orderly manner.

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