MAS just announce the standardization of the debt service ratio which banks have to use when granting property loans. Debt service ratio is the percentage of a borrower’s gross income that is used to make mortgage repayment. This is in response to MAS’ surveys of banks which revealed uneven practices with respect to the application of debt servicing ratios.
There are some interesting points in the press release:
First, there is some downward adjustments for all variable income such as rental income (although there is no mentioning of dividend income) for the purpose of calculating the ratio.
Second, certain ‘eligible’ financial assets can be ‘converted’ to income streams as income for the purpose of calculating the ratio.
Third, the press release is with regard to granting the application of property loans. What happens if a borrower is already at the edge of the allowable ‘threshold’ but he applies for unsecured …