The Singapore Housing and Development Board (HDB) made a few important announcements about the future of mortgage rates and housing accessibility in the period from July 1, 2019 to September 30, 2019.
HDB mortgage loans currently have a concessionary interest rate pegged at 0.1 per cent above the ordinary account (OA) interest rates. The mortgage interests will remain unchanged and set at 2.6 per cent per year in the period ending on September 30, 2019.
The OA interest rate is modified on a quarterly basis. OA money will earn either the legislated minimum interest rate of 2.5 per cent annually or the three-month average of major local bank interest rates (the higher percentage is the one that will count).
Once the OA interest rate is set, mortgage percentages can also be established accurately.
The average bank interest rates in the period from February to April 2019 were 0.6 per cent. Since this is lower than the legislated minimum rate, the OA interest for July and the period onward was set at 2.50 per cent – the minimum mandated by law.
Based on this calculation, the HDB mortgage rate is determined to be 2.60 per cent per year.
This is the third consecutive quarter during which Singapore mortgage rates have remained unchanged.
HDB provides a more detailed account of how the calculation is made here.
Shortly before announcing the new mortgage interest rates, HDB also provided information about new rules pertaining to the usage of COF and HDB housing loans. The new rules will put emphasis on whether the remaining lease of the property can cover the potential buyer until they reach the age of 95.
On May 9, 2019, the Singaporean Ministry of National Development and Ministry of Manpower made a joint announcement about these changes that will apply to the purchase of HDB flats, executive condos and private properties.
Current rules state that the amount of CPF a potential buyer intends to use is directly related to the remaining lease on the property. Whenever at least 60 years remain on the lease, the buyer can use the maximum CPF allowed by law to finance the purchase.
Whenever the remainder on the lease fell under the 60-year mark, the buyer was still eligible to use CPF whenever his age and the lease years added up to at least 80.
The change will now have a pronounced effect on younger buyers. They will need to do the math of whether the remaining lease can cover them until they turn 95. Whenever the condition is met, CPF will be available to pay for the flat up to the valuation limit. Whenever the condition isn’t met, the use of CPF will be pro-rated.
For leases that have 20 years remaining or them or lower, CPF will not be available to finance the property purchase. This requirement is lower than the previous one for 30 years remaining on the lease.
Finally, when a CPF member turns 55, they will need to have a property with a remaining lease that covers them until the age of 95 in order to be allowed to withdraw CPF savings into a Basic Retirement Sum.
The use of HDB public housing loans will also be subjected to new terms and conditions.
Whenever the remaining lease on the property can cover the new owner until they reach the age of 95, an HDB housing loan will be available at a loan to value limit (LTV) of 90 per cent. If the condition cannot be met, the LTV limit of up to 90 per cent will be pro-rated on the basis of the extent that the remaining lease can cover the buyer up to the age of 95.
These conditions will now be valid even for HDB properties that have less than 60 years left on the lease.
According to HDB representatives and ministry professionals, these changes are required to account for a longer life expectancy in Singapore. Through the changes, buyers are supposed to enjoy more flexibility when buying a new home and a higher level of protection/security during their senior years.
Most homebuyers who are looking to finance a property purchase through a mortgage loan will not be affected by the new rules (and the interest rates also remain unchanged).
Young couples and people in their 20s are the ones who may experience limited availability of flats because of the number of years remaining on the lease.
Under the old rules, however, the number of people who couldn’t use their CPF or an HDB loan to finance a property purchase was much higher. Everyone was limited to the selection of property that had at least 60 years left on the lease, which narrowed down the opportunities.
As per the HDB announcement, those who have completed a purchase and individuals who have signed an Option to Purchase (OTP) agreement prior to May 10, 2019 will continue accessing HDB and CPF funds on the basis of the old rules.
Individuals who haven’t finalised the property purchase within the specified timeframe and are concerned about the availability of financing can approach HDB or the CPF board for clarifications and additional assistance.
Apart from providing clear information about mortgage interest rates moving forward, the HDB announcement also discussed CPF percentages.
Central Provident Fund (CPF) members will continue earning an interest rate of 3.5 per cent per year on their OA money. In addition, they will earn up to five per cent annually on Special and MediSave accounts.
Retirement account interest rates will remain fixed at a four per cent rate in the period ending on December 31, 2019.
CPF members can get additional information about their account and its condition at the CPF official website (cpf.gov.sg) or by calling 1800-227-1188.
