Reply to Parliamentary Question on the Total Debt Servicing Ratio
QUESTION NO. 787
NOTICE PAPER NO. 439 OF 2016
FOR ORAL ANSWER
Date: For Parliament Sitting on 10 November 2016
Name and Constituency of Member of Parliament
Ms Sylvia Lim, MP, Aljunied GRC
To ask the Prime Minister whether the Total Debt Servicing Ratio (TDSR) restrictions can be relaxed to allow borrowers to obtain credit facilities if they are able to offer unencumbered private property as collateral to financial institutions, even if they have breached the TDSR limits, so as to enable them to manage their overall loan commitments.
Answer by Mr Ong Ye Kung, Minister for Education (Higher Education & Skills) and Second Minister for Defence, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of MAS:
1 Under the Total Debt Servicing Ratio (“TDSR”) framework, a borrower’s monthly loan instalments should not exceed 60% of his monthly income.
2 This is to help ensure that borrowers have sufficient cash income to meet their debt obligations.The 60% threshold applies to any property loan regardless of whether it is a loan for purchasing a property or a loan secured on an unencumbered property. Even with unencumbered private property as collateral, it is important that the borrower has sufficient cash income to meet the debt obligation. If the borrower fails to make repayment and defaults, the lender could seize and sell the property. This may not be a problem for a wealthy borrower, for example someone owning a few properties, but it would cause hardship to most borrowers offering the properties they live in.
3 So it is more prudent to have our current rules as the default position. However, financial institutions may approve property loan applications where the borrowers’ TDSR exceeds 60% in exceptional cases. Such exceptions must be approved by the financial institutions’ credit committees, in line with policies set by their board of directors.