Following the rise in interest rates, the authorities have introduced some coolingoff measures to restrict borrowing by home buyers, effective today (September 30, 2022).
The most important measure is the increase in the mediumterm interest rate floor (also called stress test rate) used to calculate the total debt servicing ratio (TDSR) and the mortgage servicing ratio (MSR).
Check your credit score: 99.co Affordability Calculator
The TDSR limits the monthly debt you can take on. It includes all types of loans, such as credit card debt, car loans and home loans. The TDSR is currently 55%.
Like the TDSR, the MSR also limits the monthly loan amount you can take out, but this only applies to the home loan of an HDB flat or executive condo. The MSR is currently set at 30%.
The stress test interest rate for bank loans has now been raised from 3.5% to 4% per annum. At the same time, a stress test interest rate of 3% has been introduced for HDB loans.
These stress test rates are not the actual interest rates on your home loan and therefore do not translate into the interest you will have to pay. Instead, they are used to calculate the maximum loan amount you can borrow. So, as the stress test rates increase, the amount of financing you will receive from the bank or HDB will decrease.
In addition, the loantovalue (LTV) limit for HDB loans has been reduced from 85% to 80%, reducing the amount you can borrow when taking out an HDB loan.
We would like to enable you to take out a loan prudently for your property purchase, as interest rates will continue to rise in the coming months.
Reduced affordability
The impact of these two measures is that the amount of home loan you can take out will be lower, regardless of whether you buy an HDB flat or a private property.
We illustrate how they affect home affordability.
Buying a HDB apartment
Let's say you and your partner have a combined income of S$6,600. Without the 3% stress test, you could afford a HDB resale flat priced at S$540,000. This is also the average price of a HDB resale flat in September 2022.
Suppose you take a 25year HDB loan, you may no longer be able to afford that flat due to the stress test interest rate of 3%.
Estimated maximum loan amount 
Estimated maximum price of a HDB flat 
Estimated monthly rate (at 2.6%) 

Stress test interest rate of 2.6% 
S$436,441.00 
S$545,551 
1,980S$ 
Stress test interest rate of 3% 
S$417,535.00 
S$521,919 
1,894 S$ 
% change 
4.3% 
4.3% 
4.3% 
This does not apply if you are eligible for resale subsidies such as the Family Allowance, Enhanced CPF Housing Grant and Proximity Housing Grant (PHG) to reduce the amount you need to borrow.
Otherwise you must:

Reduce your debt

Increase your income

Increase your deposit

Buy a cheaper property
In this table, we show how much your ability to pay will decrease when you take out an HDB loan based on different monthly household income levels.
Monthly household income 
4,000S$ 
6,000S$ 
8,000S$ 
10,000S$ 
Price of the HDB flat you could afford so far (2.6% interest rate)* 
S$330,638 
S$495,956 
S$661,274 
S$826,593 
Price of an HDB flat you can afford now (3% interest rate)* 
S$316,315 
S$474,473 
S$632,629 
S$790,786 
% change 
4.3% 
4.3% 
4.3% 
4.3% 
*Source: 99.co Data Team. Assumptions: 25year HDB loan, LTV of 80% and MSR of 30%, excluding grants and other mortgage and debt obligations.
The amount you can afford for an HDB flat drops even further if you choose to take out a bank loan.
Monthly household income 
4,000S$ 
6,000S$ 
8,000S$ 
10,000S$ 
Price of the HDB flat you could afford so far (3.5% interest rate)* 
319,601 USD 
479,403 USD 
639,203 USD 
799,004 USD 
Price of an HDB flat you can afford now (4% interest rate)* 
303,124 USD 
454,685 USD 
606,248 USD 
$757,809 
% change 
5.2% 
5.2% 
5.2% 
5.2% 
*Source: 99.co Data Team. Assumptions: 25year bank loans, LTV of 75% and MSR of 30%, excluding grants and other mortgage and debt obligations.
Buying a private property
Let's say you and your partner have a combined income of S$8,500. So far, you have been able to afford a condo for S$1,380,000. This is the average price of a condo for resale in September 2022.
Given the 4% interest rate on a bank loan under the stress test, you would no longer be able to afford the secondhand condo with a 30year home equity loan.
Estimated maximum loan amount 
Estimated maximum price of the condominium 
Estimated monthly rate (at 2.75%) 

Stress test interest rate of 3.5% 
S$1,041,099 
S$1,388,132 
4,250S$ 
Stress test interest rate of 4% 
S$979,231 
S$1,305,641 
S$3,998 
% change 
5.9% 
5.9% 
5.9% 
Unless you decide to take one of the actions mentioned above, such as reducing your debt or buying a cheaper home.
Here you can see how much your ability to pay is reduced due to differences in monthly household income when you buy a condo.
Monthly household income 
S$14,000 
S$16,000 
S$18,000 
S$20,000 
Price of the condominium that you could previously afford (3.5% interest rate)* 
S$2,286,335 
S$2,612,955 
S$2,939,573 
S$3,266,193 
Price of the condo you can afford now (4% interest rate)* 
S$2,150,469 
S$2,457,679 
S$2,764,888 
S$3,072,099 
% change 
5.9% 
5.9% 
5.9% 
5.9% 
*Source: 99.co Data Team. Assumptions: 30year bank loan, LTV of 75% and TDSR of 55%, with no other mortgage and debt obligations.
Speak to 99.co's mortgage broker to learn more about which home loan is best for you.
What do you think about the increase in stress test rates? Let us know in the comments section below.
If you found this article helpful, 99.co recommends New property market cooling measures (September 2022): Credit restrictions and lower LTV limit affect home loan applicants and private resale flat buyers to HDB and Here's why you should take a fixed rate home loan.
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