Credit squeeze as banks tighten home loan criteria

Source : Straits Times - 19 Mar 2009

GETTING a mortgage has become a far trickier proposition these days with banks tightening up loan criteria, with some owners being asked to stump up more cash when values fall.

Loans of 80 or even 90 per cent of a property’s value are still possible, especially if the buyer intends to live in the home, but investors on their second or third property are finding it tougher.

The banks’ moves come amid a real estate market hit hard by the economic crisis. Prices have fallen and are continuing to fall, forcing lenders to aggressively re-assess their loan criteria.

Once common, loans of 80 per cent are less so these days. Maybank, for instance, is granting loans of up to 70 per cent of valuation prices for its latest home loan fixed rate package.

Ms Ally Yang, a chief mortgage consultant at www.homeloan.com.sg, told The Straits Times: ‘It is very difficult to get 90 per cent financing nowadays. The banks need to see all the savings the customers have, to see if they are sufficient for the 10 per cent down payment and 24 months of instalment payments.’

Unlike Singaporean owner-occupiers, most investors as well as non-taxpayers will be able to get only up to 70 per cent financing, compared with 80 per cent last year, said Ms Yang.

Banks are becoming more careful on the eligibility condition and are doing more checks even as they compete for the good customers, she said.

It is even harder for investors, who have to pay a higher interest rate on loans than an owner-occupier - perhaps an extra loading of 0.25 per cent on the standard package, she added.

The squeeze is also forcing some buyers of new properties to think hard about their purchases, with experts warning them against holding off too long on taking loans in case prices fall.

Some owners are already having to shell out cash to make up the shortfall between their purchase prices and the valuation now. Take a home that you agreed to buy for $1 million, with a 20 per cent deposit and the assumption of obtaining a loan for $800,000.

If the valuation falls to $900,000, the 80 per cent portion is now $720,000. So you need to chip in $80,000, in addition to your $200,000 deposit, to make up the $1 million purchase price.

It is standard practice for banks to engage independent valuers to determine the market value of properties.

However, most new launches do not have this problem. Frasers Centrepoint’s Caspian in Jurong, for instance, sold 517 units out of 600 launched units last month - quite a feat these days.

‘In today’s market, developers will not want to launch at a price that cannot be matched by the banks,’ said PropNex chief executive Mohamed Ismail.

Most developers will check with valuers to see if their prices can be supported before they launch their projects, said DTZ executive director Ong Choon Fah.

‘For most new launches, particularly projects aimed at upgraders, banks would be able to match their selling prices,’ agreed Knight Frank’s executive director of residential, Mr Peter Ow.

More developers are linking with banks to offer the interest absorption scheme. This lets buyers defer the bulk of the price until completion, provided he takes a loan at the point of sale. First-time buyer Brandon Goh took it up and got 80 per cent financing for his $693,000 unit at Caspian last month.

Mr Ow, who is marketing Double Bay Residences in Simei, said buyers in the project can even get up to 90 per cent financing from DBS.

HSBC clients can get loans of up to 90 per cent valuation if ‘their financial profile…meets the bank’s criteria’, said its head of personal financial services, Mr Sebastian Arcuri.

Given that the market may soften further, experts say buyers of newly launched properties should commit to a home loan now, rather than later.

Said Mr Ismail: ‘It is in the interest of the buyer to lock in the value of their property as soon as possible. Generally, the value at new launches will be matched by the banks, but not necessarily down the road.’