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Very scary truth of the new Loan-to-Value (LTV) limits

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By now, most Singaporeans would be aware of the new property cooling measures implemented by government. While most attention is focused on the eye-popping Additional Buyer Stamp Duty (ABSD) of 12%, the more sinister aspect of the cooling measures for existing private property home owners should be the Loan-to-Value (LTV) limits. In the worst case scenario, existing home owners may be forced to do margin top ups if their property value plunged in the next few months.

Read on to find out why LTV can be so important to your home loan and why you should pay attention to this cute little rule because if property prices dropped in the coming months, you would likely to suffer refinancing nightmares. And I am not joking.

Many Singaporeans assume that property prices would keep rising. But this may not necessary be true. A lot of factors come into play but ultimately, supply and demand still play a major role. In this respect, the outlook for home prices is quite gloomy. And existing home owners may need to pay attention to the LTV ratios. Just picture the following.

LTV

Supply glut

According to URA, as at the end of 1st Quarter 2018, there was a total supply of 40,330 uncompleted private residential units (excluding ECs) in the pipeline with planning approvals compared with the 36,029 units in the previous quarter. Of this number, 23,514 units remained unsold as at the end of 1st Quarter 2018, up from 18,891 units in the previous quarter. From the supply side, there would be a glut of private properties flooding the market in the next few years.

Demand destruction

From the demand side, many buyers would be deterred to enter the market because of the ABSD and also the LTV. Most Singaporeans are not cash rich and would find it difficult to fork out more cash as the LTV is now lowered to 75% for first property, 45% for second property and 35% for third property. This is a double whammy for the demand side of the house. In addition to that, home buyers are also subjected to the Total Debt Service Ratio (TDSR)

LTV

Hanging the developers

Separately, developers would be forced to lower their selling prices for their existing unsold units because [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: July 6, 2018 — 8:54 am

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