TDSR | Total Debt Servicing Ratio
TDSR or Total Debt Servicing Ratio is considered one of the most severe property cooling measures in Singapore. Introduced by the Monetary Authority of Singapore in 29 June 2013, the TDSR framework restricts banks from approving home loans if a person’s monthly debt obligations including credit card installment exceed 60 per cent of his monthly gross income. Yet, it was found that only 1 in 3 persons being recently surveyed by UOB is aware of what is TDSR. This unavoidably affects the mood of property investment Singapore.
What is TDSR?
TDSR is the short form of total debt servicing ratio. TDSR is a percentage of your total monthly financial commitments divided by your total monthly income. This is a threshold value which banks will be deriving to determine the eligibility of loan. In the past, banks were all using Debt Servicing Ratio as a benchmark to assess loan applicants. But different banks may terms total monthly financial commitments which include car, home, personal loans and other credit facilities or only include the major portions. This resulted inconsistency because one bank may reject while the other bank can accept the loan application by considering only certain acceptable monthly financial commitment.
Such DSR benchmark is further improved and refined by MAS to term it as Total Debt Servicing Ratio (TDSR). The TDSR framework will provide financial institutions a robust basis for assessing the debt servicing ability of borrowers applying for property loans, taking into consideration their other outstanding debt obligations. Banks have since use this new benchmark to determine if the borrower is overly geared with debts, i.e. not to over 0.6 . As these changes are really made long term to encourage the avoidance of over leveraging, it will inevitably impact many average Singaporeans who are looking into buying their second property for investments.
TDSR Threshold – Measurement of Prudence
TDSR Threshold : 0.6 >= Monthly Total Debt Obligations / Gross Monthly Income
Many Singaporeans are uncertain how to compute for Monthly Total Debt Obligation. Actually this includes existing Housing/Car/Personal/Overdraft/Credit Card Loan Instalment while Gross Monthly Income includes fixed monthly pay and variable income (with 30% haircut) such as bonus/commission/rental income. Any property loan extended by the financial institutions not to exceed a TDSR threshold of 60% and will regard any property loan in excess of a 60% TDSR to be imprudent. Do note that it may be up to the banks to set more stringent requirements especially for those who barely meet the threshold of 60%.
Take an example of a typical Singaporean couple,
Monthly mortgage payment of $2,000 (annual payment of $24,000),
Annual property taxes of $2,400 or $200 per month equivalent
Monthly credit card balances/instalment totaling $3,000 per month
Gross family income of $100,000 or $10,000 per month
This would give a TDSR of around 52%. This couple appears to be carrying an acceptable amount of debt.
How Can TDSR Affects Me?
Life as a property investor is certainly more tougher than before. The banks can only approve loans after a more stringent due diligence check on more supporting documents submitted along with the loan applications. This resulted a much longer approval time taken by the banks. Aside to this, the banks will usually also verify with the applicant’s Credit Rating history from the local credit rating bureaus such as Dun and Bradstreet (Singapore) Pte Ltd or DP Information Networks Pte Ltd. This is a hidden process done by the bank to verify your credit records. If your credit rating is poor, it may cause a rejection to your loan application.
Property investors must have a clear idea on own’s financial health before committing to the 2nd or more property purchase. Financial planning becomes more important than before.
If you are in the process of applying for a bank loan or doing a refinance, do a review on all your credit cards and monthly expenses. You may like to cancel those credit cards which you have not used before or under utilise. The reason being that the bank will take the credit limit of each credit card into consideration and probably allocate say $300 per month expense per card even if you have not used it before. Be also mentally prepared to submit a ton of documents as per required by the bank.