Admin Crawfort
Navigating the Singapore property market can be complex, especially when financing your dream home. Whether you’re a first-time buyer or a seasoned investor, grasping the Loan-to-Value (LTV) ratio concept is essential.
This guide will help you understand everything you need to know about LTV ratios in Singapore’s property market. It will empower you to make informed decisions and secure the best possible financing for your property purchase.
What Is Loan-To-Value (LTV) Ratio?
The Loan-To-Value (LTV) ratio is critical in determining how much you can borrow from a financial institution to purchase a property in Singapore. It represents the maximum amount a lender, such as a bank or the Housing and Development Board (HDB), is willing to loan you, expressed as a percentage of the property’s value.
This percentage is calculated based on either the lower purchase price or the official valuation of the property. For instance, if you’re eyeing a property valued at S$1,000,000 and the LTV ratio is 75%, the maximum loan you can secure is S$750,000. The remaining S$250,000 would constitute your down payment.
Why Does LTV Matter?
The LTV ratio significantly impacts your financial commitments when buying a property. A lower LTV translates to a larger upfront down payment, while a higher LTV allows you to borrow more, reducing the initial cash outlay.
Understanding the LTV ratio empowers you to plan your finances effectively, assess affordability, and make informed decisions about your property purchase.
LTV Limits In Singapore
The Monetary Authority of Singapore (MAS) sets the LTV limits for HDB and bank loans to ensure responsible lending and maintain a stable property market. These limits are subject to change based on prevailing market conditions and government regulations.
The maximum LTV limit for HDB and bank loans is generally 75%. It means you can typically borrow up to 75% of the property’s value or purchase price, whichever is lower.
HDB Loans
HDB loans are specifically for those purchasing Housing Development Board (HDB) flats. These loans offer a maximum LTV ratio of 75%. This means you can borrow up to 75% of the purchase price or the valuation of the HDB flat, whichever is lower.
A key advantage of HDB loans is that there’s no minimum cash down payment requirement. Buyers can finance the entire down payment using their Central Provident Fund (CPF) Ordinary Account (OA) savings. Additionally, buyers taking an HDB loan can choose to retain up to S$20,000 in their CPF OA, allowing these funds to continue earning interest.
It is important to note that private property owners looking to purchase an HDB resale flat must wait 15 months after selling their private property. This cooling measure aims to moderate demand in the HDB resale market and promote affordability.
Read also: HDB Loan Eligibility (HLE) Documents Checklist: Your Key To Securing A Home Loan
Bank Loans
If you’re purchasing a private property or choose to finance an HDB flat through a bank loan, the maximum LTV limit is also 75%. However, unlike HDB loans, bank loans require a minimum cash down payment of 5% of the purchase price.
The remaining 20% of the down payment can be paid using a combination of cash or your CPF OA savings.
LTV Limits for Shell Companies
The LTV limit for shell companies is significantly lower, at 15%. This stricter limit reflects the higher risk associated with lending to shell companies than individuals.
Deducting Discounts, Rebates, or Benefits
When calculating the property value for LTV purposes, any discounts, rebates, or benefits the buyer receives must be deducted. This ensures that the LTV ratio accurately reflects the actual value of the financed property.
Factors Influencing LTV Limits
While the maximum LTV limit for HDB and bank loans is generally 75%, several factors can influence the actual LTV ratio you qualify for:
Outstanding Housing Loans
If you have existing housing loans, the LTV limit for subsequent loans will be lower. This is because lenders consider borrowers with multiple outstanding loans at higher risk. The table below summarises the LTV limits based on the number of outstanding housing loans:
| Outstanding Housing Loans | LTV Limit | Minimum Cash Downpayment |
| None | 75% or 55% | 5% (for LTV of 75%) 10% (for LTV of 55%) |
| 1 | 45% or 25% | 25% |
| 2 or more | 35% or 15% | 25% |
Age and Loan Tenure
The maximum loan tenure for HDB flats is capped at 30 years, while for non-HDB properties, it’s 35 years. If the loan tenure, combined with your age, exceeds 65 years, the LTV limit may be reduced. This is because lenders assess the risk of borrowers being unable to repay the loan before retirement.
For joint borrowers, the LTV limit is determined using an income-weighted average age. This calculation considers both borrowers’ ages and respective incomes to assess their combined repayment capacity.
Credit Score
A good credit score is crucial when applying for a home loan. It reflects your creditworthiness and responsible financial behaviour. A poor credit score, with a history of late payments or defaults, can lead to a lower LTV offer as lenders perceive you as a higher-risk borrower.
For instance, banks may offer a lower LTV of 60% instead of the maximum 75% for a first bank loan if the borrower has a poor credit history.
Property Age and Lease Tenure
Properties with shorter remaining lease terms may have lower LTV limits. This is because the value of leasehold properties tends to decline as the lease approaches its expiry date, making them less desirable as collateral. For example, leasehold properties with 30 to 40 years left on their lease may incur an LTV ratio of 60%.
Property Condition and Location
The physical condition and location of the property can also influence the LTV ratio. Properties in prime locations or those in excellent condition may be eligible for higher LTV ratios due to their higher market value and resale potential.
Mortgage Servicing Ratio (MSR) And Total Debt Servicing Ratio (TDSR)
The LTV ratio is connected to the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR). Lenders consider these important factors when deciding whether a borrower qualifies for a loan and can afford it.
Mortgage Servicing Ratio (MSR)
This applies specifically to HDB loans and limits the percentage of your gross monthly income that can be used for monthly mortgage repayments. A higher LTV ratio generally leads to a higher MSR as your loan amount and monthly repayments increase. This ensures that borrowers do not overextend themselves financially with their housing loan repayments.
Total Debt Servicing Ratio (TDSR)
This applies to all property loans and limits the percentage of your gross monthly income that can be used to service all your monthly debt obligations, including your housing loan, car loans, personal loans, and credit card debt. The TDSR threshold is currently set at 55%5.
This holistic assessment of your debt obligations helps you comfortably manage your debt commitments.
How To Improve Your Chances Of Getting A Higher LTV
While various factors influence your LTV limit, there are proactive steps you can take to improve your chances of securing a higher LTV:
- Maintain a Good Credit Score. A healthy credit score is essential for securing favourable loan terms. Ensure you pay all your bills and loan repayments on time, keep your credit card balances low, and avoid taking on unnecessary debt. Regularly review your credit report to identify and address potential issues that could negatively impact your score.
- Reduce Existing Debt. Minimise your outstanding loans to improve your TDSR and demonstrate your ability to manage your finances effectively. Prioritise paying down high-interest debt and consider consolidating loans to simplify your repayments and reduce your overall interest costs.
- Choose a Property with a Longer Lease. Opt for properties with longer remaining leases to increase their value as collateral and potentially qualify for a higher LTV. This is particularly important for leasehold properties, where the remaining lease term significantly affects the property’s value.
- Consider a Shorter Loan Tenure. While a shorter loan tenure may result in higher monthly repayments, it can also lead to a higher LTV offer from lenders. This is because a shorter loan term reduces the lender’s risk. Carefully assess your financial situation and repayment capacity before opting for a shorter loan tenure.
Risks Of High LTV Ratios
While a higher LTV ratio may seem attractive as it reduces your upfront costs, it’s crucial to be aware of the potential risks involved. Higher LTV ratios generally translate to larger loan amounts and, consequently, higher overall interest costs over the loan term.
Additionally, borrowers with high LTV ratios are more vulnerable to market fluctuations. If property values decline, you could end up owing more on your mortgage than the property is worth, potentially facing financial difficulties.
The Bottom Line
Understanding the LTV ratio is fundamental for anyone looking to purchase property in Singapore. It plays a crucial role in determining your loan amount, down payment requirements, and overall affordability.
By considering the factors that influence LTV limits, such as outstanding loans, age, credit score, and property characteristics, you can make informed decisions about your property purchase and secure a loan that aligns with your financial capabilities.
Remember to maintain a good credit score, manage your debt effectively, and choose a property that meets your long-term needs and financial goals.
Consulting with financial advisors and conducting thorough research will further empower you to navigate the complexities of property financing and make the best choices for your individual circumstances.
