Loan to value (LTV) ratio or limit is the loan amount that Singapore mortgage banks and lenders will offer you based on your property value. Mortgage LTV is impacted after the various cooling measures introduced by Singapore government. *Updated August 2013*
What is Mortgage Loan To Value ratio today?
Singapore citizens, foreigners and permanent residents can borrow a maximum of 80% loan to value on residential properties before the last cooling measures. Only Singaporeans can borrow 80% for their first purchase or existing properties are fully paid. So if the valuation of a property is $1,000,000, the maximum one can borrow is $800,000. Recently, the Singapore government cooling measures have led to a second and subsequnt mortgage loan limit of 60% LTV to control rising property prices, if the first loan is still not fully paid. So based on the previous price, the maximum a bank will lend is $600,000.
Property investors dread the situation where the property's appraised value doesn't match its initial value. This is because lenders offer house loans based on its lower valuation wherein the borrower has to cover the difference. So if you purchased a property for $1,000,000, the valuation you get could be lower, say $900,000. Applying the 80% LTV limit will result in $720,000 loan amount. The buyer will have to pay the difference of $80,000 ($800,000 less $720,000) in cash.
Impact of TDSR
Your income and liabilities will affect your LTV by banks in Singapore as lenders offer you loans based on whether you can repay the loan and your Debt-Servicing Ratio (DSR). Now you also have to meet the new TDSR framework, and in addition, for HDB buyers, you must also meet the MSR limit for HDB buyers. Your personal financial commitments are taken into consideration while determining your LTV. So if you have a high income, but have large outstanding car, education and personal loans, you may end up with a low LTV limit, reduced loan amount and a larger downpayment. If you need a higher LTV, you could no longer use a guarantor for mortgages unless they are willing to be co-borrowers which will impact the LTV of their future purchases.
However banks and financial institution have their own classifications and policies regarding property mortgages for different types of properties. Consequently, there are different loan to value limits for different types of property, especially so for overseas properties financing in Singapore.
Lenders always analyze their client's credit report for proof of their credit conduct. So be punctual with your credit facility payments, especially if you plan to apply for a loan in the coming months. Don't miss payments to ensure a satisfactory credit score, which greatly affects the feasibility of loan to value by banks.
Simplying the process
This situation can be easily avoided by requesting for valuation by the banks. Alternatively, you may ask the seller whether a valuation has been done. Often, such valuations are verbal in nature, with no formal valuation reports.
Buyers should compare rates and various loan to value by banks in Singapore before deciding. However this takes time; so hire a mortgage broker to handle this as they know all about market home loans and have contacts with lenders. You can also use FindaHomeLoan.co, a dedicated mortgage rates comparison portal, to compare the packages and contact us for a valuation.
In summary, do your homework. Before purchasing a home, apply for approval in-principle and it's no-obligation. You should prepare in advance by contacting the banks who will calculate your borrowing limits and LTV, especially for second mortgage with our comparison services. Then when a house catch your eyes, ask the same banks for valuations. If the valuations matches your prices, you are already in a good position to negotiate confidently.