Simply put, TDSR – or Total Debt Servicing Ratio – which was introduced by the Monetary Authority of Singapore in June 2013, limits the amount that home owners can borrow in Singapore. It is a way for the Singaporean government to safeguard borrowers from over-borrowing in the city-state, by providing banks (or other lenders) with a robust basis and standardised approach for assessing the debt serviceability of borrowers. Notably, TDSR standard is applied in Singapore to property loans granted by all financial institutions including the banks, money lenders, insurers etc.
As such, TDSR requires that the borrower’s – who is applying for loan facilities for purchase financing, refinancing and equity withdrawal loans secured by property – monthly mortgage repayment, along with all his or her other monthly debt obligations including car loan, student loan, personal loan, credit card bills etc. cannot exceed more than 60% of his or her monthly gross income.
Do note, this 60% cap on the total monthly debt obligations applies for an individual or a household – depending on whether the property is a single or joint purchase.
Latest changes to the TDSR
In March 2017, the Singapore Government implemented a further series of property market cooling measures, which included some revisions to the TDSR framework as well.
This included the non-application of the 60% TDSR threshold to mortgage equity withdrawal loans where the loan-to-value (LTV) ratio is 50% and below.
Here, the LTV ratio is the ratio of the home loan to the current market value of the property. Equity withdrawal loans refer to loans where you borrow against the value of your private property to obtain cash, when your home loan has been paid down over the years. This revision, the Government noted, was aimed at helping home owners monetise their properties in their retirement years.
Then on July 6, 2018, LTV limits were tightened by 5% for all housing loans granted by financial institutions. Before the change, while individual borrowers could borrow up to 80%, or 60% if the loan tenure was more than 30 years or extends past age 65; now they can only borrow 75%, or 55% if the loan tenure is more than 30 years or extends past age 65.
As a result of restricting the amount that buyers can borrow to buy property (especially from the second property onwards), these revisions have had a big impact on Singapore’s property market by bringing down the property demand, transaction volumes and prices in the past five years.
How is TDSR calculated in Singapore?
Do remember, TDSR is a permanent structural safeguard that all banks and financial institutions must follow when assessing housing loans, refinancing of housing loans, and loans secured by property.
This – maximum home loan you can apply for – is easily explained by the following example with numbers.
|Gross Monthly Income||S$10,000|
|Maximum monthly debt permissible|
(60% of gross income)
|Current monthly debt repayments|
(e.g. personal loans, credit card bills)
|Monthly income available for home loan payment||S$4,000|
Mortgage Servicing Ratio (MSR)
If you are buying a HDB flat or an Executive Condominium (EC), you will be subjected to another ratio known as the Mortgage Servicing Ratio (MSR), which is set at 30% (half of TDSR’s 60% limit). Based on the example above, the maximum monthly home loan instalment permissible for an HDB/EC purchase due to MSR is S$3,000 (30% of gross income).
This in essence is how TDSR works. If the borrower cannot meet the requirements of TDSR, they have to either lower their home loan by making a bigger down-payment for the property purchase or consider buying a more affordable property.
Simply put, TDSR is calculated by dividing a borrower’s total monthly debt obligations by gross monthly income. Though an important consideration in this, is one’s variable income.
‘Haircut’ in one’s variable income for calculating TDSR (70%)
Generally, a home loan applicant with variable income can only get 70% of the loan amount that an applicant with fixed income can, under the TDSR framework. This applies to freelancers, odd-job workers, self-employed, who are deemed riskier by lenders,
For example, if a self-employed professional earns $50,000 a year, only 70% of the $50,000 = $35,000 is counted for TDSR and his/her TDSR would then be 60% x $35,000/12 months = $1,750 – as the amount that can go towards debt repayment. Whereas for a professional this sum would have been 60% x $50,000/12 months = $2,500.
‘Haircut’ in rental income (70%)
Similarly, do note that only 70% of rental income is counted towards TDSR.
If someone earns a fixed income of $10,000 per month plus a rental income of $3,000 per month. For TDSR purposes, his variable income is subject to a 30 percent haircut (reduction in assets). His gross monthly income is $12,100 ($10,000 + $2,100). Therefore, the amount permissible towards debt repayment would be 60% x $12,100 = $7,260.
In case of joint applicants
If a husband-wife duo approaches a lender for a housing loan, TDSR will apply as in this example.
Jeeny has a fixed income of $4,500 per month and debt repayments of $2,000. Her husband Tom’s gross monthly income is $5,000 and his debt repayments total $2,500. So TDSR will be $4,500/$9,500 = 47.3%
The total amount permissible towards debt repayment would be 60% x $9,500 = $5,700. Of this, they already are paying $4,500. Thus, the lenders can give them a further loan of up to $1,200 per month.
Another point to note in case of joint applicants is that under the TDSR framework, it’s harder to stretch the loan tenure. Previously, you could stretch your loan tenure by making a joint application with a younger borrower such as your son or daughter, and the lender would just consider the youngest one’s age as part of the lending criteria. But now, lenders use the average age of the borrowers, and include only those borrowers in the calculations who have an income.
Variable interest rates for home loans
Most people take on home loans which are subject to changing or variable or floating interest rates. And to judge one’s capacity to take on debt, lenders have standardized these at 3.5% for residential properties, and 4.5% for commercial properties, which are called “stress test” rates.
Under the TDSR framework, home buyers must maintain a TDSR of 60% at these stress test rates levels, which lowers the amount that can be borrowed, significantly.
In a nutshell, even if you don’t have much debts, there’s a stress test limit beyond which you cannot borrow.
Exceptions to TDSR in Singapore
In response to feedback from some borrowers who were unable to refinance their existing property loans owing to the application of the TDSR threshold of 60%, the Monetary Authority of Singapore (MAS) in 2016, announced the fine-tuning of the refinancing rules under the Total Debt Servicing Ratio (TDSR) framework giving borrowers more flexibility in managing their existing debt obligations.
- Refinancing of owner-occupied housing loans: Earlier, for owner-occupied residential properties bought before the introduction of TDSR, a borrower may be exempted from the TDSR framework when he refinances his housing loan. Now this refinancing concession has been extended to all owner-occupied residential properties, including those bought after the introduction of TDSR. This adjustment recognises that all new housing loans would have been subjected to the TDSR framework at inception.
- Refinancing of investment property loans: Earlier, for properties that were purchased for investment before the introduction of TDSR, borrowers could have refinanced above the TDSR threshold of 60 per cent if they commit to debt reduction plans when refinancing their loans. From 2016, MAS has allowed a borrower to refinance his investment property loan above the TDSR threshold, regardless of when the property was purchased, if he meets the following two conditions: (a) commits to a debt reduction plan with his financial institution to repay at least 3% of the outstanding balance over a period of not more than three years; and (b) fulfils his financial institution’s credit assessment.
How to improve TDSR in Singapore?
Now to the obvious question in everyone’s mind i.e. how to improve your TDSR in Singapore.
There are two ways of doing this.
Firstly, reduce your monthly loan commitments as soon as, and as far as possible. So, pay off any student or car loans, or credit card debts. This will also help you in saving on interest payments.
Secondly, analyse your eligible financial assets such as Singapore dollar deposits, gold or stocks and shares, which may be converted to extra income streams by your bank, after the corresponding collateral “haircuts” (reduction in the value of the assets). This will not only boost your monthly income, but also bring down your TDSR.
To summarise, TSDR – as an instrument was introduced with a two-pronged approach. Firstly, to strengthen credit underwriting practices by financial institutions i.e. ensure loans are only issued to borrowers who can afford them; and secondly, to encourage financial prudence among borrowers i.e. help borrowers consider the true budgetary impact of a mortgage. And it has delivered on both the counts substantially, by all accounts.
Frequently Asked Questions
Total Debt Servicing Ratio is a framework introduced in Singapore to ensure that people borrow money responsibly and are not over-leveraged. In simple terms, TDSR is the percentage of your annual income that you are allowed to use to service any loans you may have. As it stands, the current maximum percentage allowed is 60% of your annual income.
Example: You have an annual income of $60,000. You also have repayment obligations for your student loan, credit card debt, and car loan that add up to $36,000 annually. This means that you will not be able to borrow anymore money from a Financial Institution as you have hit the maximum percentage allowed for TDSR at 60% ($36,000/$60,000).
Total Debt Servicing Ratio applies to any individual applying for a loan secured by a property or for a loan to buy a property from a Financial Institution (FI) or a bank. Loans to companies are assessed on a different set of criteria and are not subject to TDSR. However, Financial Institutions (FIs) and banks are required to apply the TDSR rules to a borrower who is a sole proprietorship or an individual who sets up a company solely to purchase a property.
By ensuring that your monthly debt repayments account for less than 60% of your income, TDSR limits the amount you can borrow for your housing loan. The amount you are allowed to borrow from Financial Institutions or banks further decreases if you have any other debt repayment obligations.
The following will also apply to you when obtaining a home loan due to a more confining mortgage framework:
• Variable Income
○ If you have a variable income, only 70% of your total assessed income will be factored in for TDSR
○ This is due to the higher risk attached to lending money to borrowers with a variable income
○ An interest rate of 3.5% for residential properties will be used to conduct a stress test
○ This means that even if the interest rate increases to 3.5%pa, you will need to maintain a TDSR of 60%
• Loan-to-Value ration (LTV)
○ You will only be allowed to borrow a certain percentage of your property’s value
○ For HDB Concessionary Loans, the maximum LTV is at 90% while bank loans are capped at a maximum LTV of 75%
• Tenure of Loans
○ For HDB properties, the maximum loan tenure is 30 years
○ For non-HDB properties, the loan tenure is capped at 35 years
These factors make it more difficult for borrowers to purchase a home. One thing to note is that if you are buying a property with your partner, then TDSR will be calculated based on:
• The average monthly income of you and your partner
• The debt obligations of both borrowers
• The income-weighted average age of each borrower will be used to determine the loan tenure
If you are self-employed and have a variable income, only 70% of your total assessed income will be factored in for TDSR. After calculating the amount for 70% of your annual income, only 60% of that can be used towards debt repayment obligations.
Example: If your total assessed annual income as a self-employed individual is $100,000, your TDSR will be calculated based on $70,000 (70% x $100,000). Of which, only $42,000 (60% x $70,000) can go towards debt repayment obligations every year.
Yes. Rikvin Capital can lend to accredited investors who are facing TDSR issues. This is because we are not a Financial Institution (FI) or a bank. Therefore, we are not required by law, to provide loans according to the TDSR requirements.
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