{"id":59981,"date":"2022-09-30T19:48:14","date_gmt":"2022-09-30T11:48:14","guid":{"rendered":"https:\/\/www.99.co\/singapore\/insider\/?p=59981"},"modified":"2022-10-07T14:05:48","modified_gmt":"2022-10-07T06:05:48","slug":"how-much-new-stress-test-interest-rates-affect-home-affordability","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/how-much-new-stress-test-interest-rates-affect-home-affordability\/","title":{"rendered":"Here’s how much the new stress-test interest rates will affect home affordability"},"content":{"rendered":"
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Following the increase in interest rates, the authorities have introduced a few cooling measures effective today (30 September 2022)<\/a> to restrict borrowing by home buyers.<\/p>\n

The main measure is the increase in the medium-term interest rate floor (also known as the stress-test interest rate) to compute the Total Debt Servicing Ratio (TDSR)<\/a> and Mortgage Servicing Ratio (MSR)<\/a>.<\/p>\n

Know your loan eligibility: 99.co Affordability Calculator<\/a><\/i><\/p>\n

The TDSR limits the monthly debt obligation that you can take. It includes all types of loans, such as credit card debt, car loans and property loans. The TDSR is currently at 55%.<\/p>\n

Like the TDSR, the MSR limits the monthly loan amount that you can take, but it is only for the housing loan of an HDB flat or an Executive Condo. The MSR is currently at 30%.<\/p>\n

The stress-test interest rate for bank loans has now been raised from 3.5% to 4% per annum. At the same time, the stress-test interest rate of 3% has been introduced for HDB loans.<\/p>\n

\"Interest<\/a><\/p>\n

These stress-test interest rates are not the actual interest rates of your home loan, so they don\u2019t translate to the interest you\u2019ll need to pay. Instead, they are used to calculate the maximum loan amount that you can borrow. So with the increase in the stress-test interest rates, financing from the bank<\/a> or HDB will be lower.<\/p>\n

\"Banks<\/a>
In recent months, local banks have increased the interest rates of their home loans.<\/figcaption><\/figure>\n

On top of that, the loan-to-value (LTV) ratio limit for HDB loans has been decreased from 85% to 80%, reducing the amount you can borrow if you take an HDB loan<\/a>.<\/p>\n

This is to ensure prudence in borrowing for your property purchase, as interest rates are set to increase further in the coming months.<\/p>\n

Reduced affordability<\/h2>\n

The impact of the two measures is that the home loan amount you can borrow will be lower, whether you\u2019re buying an HDB flat or a private property.<\/p>\n

We illustrate how they will affect home affordability.<\/p>\n

Buying an HDB flat<\/h3>\n

Let\u2019s say you and your partner have a combined income of S$6,600. Without the 3% stress-test, you could afford an HDB resale flat priced at S$540,000. This is also the median price of an HDB resale flat in September 2022.<\/p>\n

Assuming you take an HDB loan with a 25-year tenure, you may no longer be able to afford this flat due to the 3% stress-test interest rate.<\/p>\n\n\n\n\n\n\n
<\/td>\nEstimated max loan amount<\/b><\/td>\nEstimated max price of HDB flat<\/b><\/td>\nEstimated monthly instalment (at 2.6%)<\/b><\/td>\n<\/tr>\n
Stress-test interest rate of 2.6%\u00a0<\/b><\/td>\nS$436,441.00<\/span><\/td>\nS$545,551<\/span><\/td>\nS$1,980<\/span><\/td>\n<\/tr>\n
Stress-test interest rate of 3%<\/b><\/td>\nS$417,535.00<\/span><\/td>\nS$521,919<\/span><\/td>\nS$1,894<\/span><\/td>\n<\/tr>\n
% change<\/b><\/td>\n-4.3%<\/span><\/td>\n-4.3%<\/span><\/td>\n-4.3%\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

This is unless you\u2019re eligible for resale grants<\/a>, such as the Family Grant, Enhanced CPF Housing Grant and Proximity Housing Grant (PHG)<\/a>, to reduce the amount you need to borrow.<\/p>\n

Otherwise, you will need to:<\/p>\n