Refinancing business 'hit by home loan curbs'

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singaporeproperty
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Refinancing business 'hit by home loan curbs'

Post by singaporeproperty » Mon Sep 16, 2013 11:37 pm

Refinancing business 'hit by home loan curbs'

Mortgage advisers cite plunge in loan approvals after new rules from June

Published on Sep 14, 2013

By Melissa Tan


NEW rules on home loan borrowing have hit the mortgage refinancing business hard, say mortgage advisers.

Local banks are not commenting on any decline in their refinancing operations but mortgage advisers believe the fall has been significant, given the sharp drop in the number of loan approvals.

Any downturn can be traced to the total debt servicing ratio (TDSR) framework that took effect in late June. This placed a cap on debt-to-income ratios, affecting the amount that home owners could borrow. It also requires banks to evaluate all the other debts that borrowers hold.

"Refinancing approvals have dropped. Some banks have also started to take advantage of the situation. It's now a lot more difficult to put pressure on banks for better rates," said Mr Alfred Chia, chief executive of financial advisory firm SingCapital.

Mr Chia noted that although home owners are generally still keen on refinancing, loan approvals plunged by 30 per cent to 40 per cent in July and August compared with the first two months of the second quarter.

Refinancing involves owners moving their home loan package to a different bank to get a lower interest rate or a different loan structure.

This could mean switching from a floating-rate loan to a fixed-rate loan or vice versa.

The approval period for loans - whether a new mortgage or a refinanced loan - has also lengthened considerably due to all the extra paperwork that applicants have to tackle under the new rules.

Mr Sean Lim, founder of home loan advisory portal Findahomeloan.sg, told The Straits Times: "The number of documents you need to submit has gone up by a lot. It's really a nightmare for some borrowers."

Banks have to assess a person's debt profile under the TDSR whenever he takes out a home loan or applies to refinance an existing mortgage.

The assessment requires borrowers to submit credit card and car loan statements and information about any other debts they hold.

Mortgage advisers said that some home owners could be caught between a rock and a hard place if they cannot refinance due to mortgage curbs but have a floating-rate loan, which makes them more vulnerable to interest rate hikes.

Housewife Li Shan Shan, who is applying for refinancing, said she was worried that her application might not be approved.

"The purpose of refinancing is to lower debt. However, with the implementation of TDSR, there is a chance that one is denied this."

The Straits Times understands that the refinancing business at the local banks has fallen since the TDSR took effect, though banks declined to comment on any drop.

Ms Linda Lee, senior vice-president of deposits and secured lending at DBS, said: "Home buyers should remember that during a rising interest rate environment, fixed rates will rise in tandem.

"In addition, some home owners may not be able to switch to fixed rates in a timely fashion if there is a lock-in period for their existing mortgage programme."

Borrowers have another option in addition to refinancing. They can stay with their bank but change the loan package, a process known as repricing.

A repriced loan package can take effect as early as the following month, but a refinanced package may require three months to take effect.

melissat@sph.com.sg

http://www.straitstimes.com/archive/sat ... s-20130914

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