Whether it's an HDB loan or bank loan, most would likely take a loan to finance their property. But that doesn't mean that you can borrow as much as you want as there's a limit to how much financing we can obtain. This is called the Loan-to-Value (LTV) ratio, which is a restriction that the Singapore government has put in place to limit the maximum amount property buyers can borrow from HDB and banks.
The LTV determines the maximum amount of funds you can borrow and hence, how much downpayment you need to pay upfront in cash and/or CPF Ordinary Account (OA) savings. It applies as long as you take out a home loan to finance your property purchase, whether it's your first, second, or nth mortgage.
In this guide, we'll help you understand the concept of the Loan-to-Value (LTV) ratio, the rationale behind it, and the different LTVs for HDB and bank loans.
Loan-to-Value Ratio (LTV): An Overview
What is LTV?
The Loan-to-Value ratio, or LTV ratio, is the amount that you are allowed to borrow to finance your home.
HDB Loan LTV
Up to 85% of the purchase price/property value
Bank Loan LTV
Up to 75% of the purchase price/property value
Factors that may affect your LTV
The property's lease, location and condition, your age and credit score
If you own a property or are thinking of purchasing one, you've probably read about the latest Dec 2021 Singapore property cooling measures. The announcement of the new cooling measures saw the LTV being revised to 85% for HDB-granted loans, from the previous 90%.
Read all about the new 2021 property cooling measures here.
What Is a Loan-to-Value Ratio (LTV)?
Let's first go back to basics. The loan-to-value ratio, or LTV ratio, is the amount that you are allowed to borrow to finance your home. For instance, an LTV ratio of 85% means that you can borrow up to 85% of your property value (or purchase price, whichever is lower).
LTV ratios are implemented as a safeguard against over-leveraging by borrowers. If you’re trying to decide between an HDB loan and a bank loan, read this article to know the differences between the two.
If you buy a resale property and you pay more than the amount of its HDB/bank valuation, that Cash Over Value (COV) amount must be paid in cash. For example, if you pay $530,000 for a property valued at $500,000, the LTV will apply to $500,000 (the valuation) and you must pay the $30,000 in cash.
Loan-to-Value Ratios (LTV) in Singapore
One of the key differentiating factors of HDB housing loans and bank loans is the LTV.
HDB Housing Loan LTV (up to 85%)
The HDB Concessionary Loan (basically the HDB housing loan, which is only available for BTO, Sale of Balance Flat, Re-offer of Balance Flat, and resale flat purchases) have a maximum Loan-to-Value (LTV) ratio of 85%. This means you can loan up to 85% of the purchase price/property value.
The downpayment can be paid by cash, from available savings in your CPF OA, or a mix of both. There is no minimum cash component.
Related article: Should You Use CPF to Pay Off Your Home Loan?
Since you can only own one HDB flat (and hence an HDB housing loan) at any given time, this is the only LTV you need to know.
Bank Loan LTV (up to 75%)
For a bank loan, the maximum LTV ratio is capped at of 75% LTV for the first loan (i.e. if you have no outstanding home loans). Of the remaining 25%, 5% must be paid in cash. The remaining 20% can be paid using a combination of cash or your CPF-OA savings.
Before July 2018, the bank loan LTV used to be 80%. But it was tightened to 75% during the 2018 property cooling measures. Following the announcement of the 2021 property cooling measures, the bank loan LTV remains at 75%.
Why You May Not Always Qualify for the Maximum LTV
It’s important to note that HDB/banks do not have an obligation to loan you the full LTV. They can opt to approve a lower LTV limit, or reject your application outright. If that's happened to you, here are some possible reasons:
1. The Remaining Lease of the Property May Be Too Low
Leasehold properties with 30 to 40 years left on their lease may incur an LTV ratio of 60%. The reason: banks feel that properties with dwindling leases constitute less satisfactory collateral because of lowering market value towards the end of a lease.
Related article: The Decaying HDB Lease: Myth or Reality
You may also find that you cannot use your CPF funds to pay for such properties.
There are special cases whereby properties are purchased through monthly payments, or still obtaining a loan despite the age of the property. These are usually cases whereby the buyer has managed to negotiate a private contract with the seller via a law firm. Alternatively, it may be a special loan by a private bank to a wealthy buyer who also has a good credit score.
2. The Property Location and Condition Is Poor
Based on the location and state of your property, the LTV cap can be lowered significantly. Properties that are based abroad tend to get lower LTV limits. Properties located in a less desirable neighbourhood (e.g. close to a red-light district) may also merit a lower LTV ratio.
The lender may check for lawsuits against properties too. Properties that are run down or have major defects are also reasons to merit a lower LTV ratio.
3. Your Age and Loan Tenure Are Too High
If the loan tenure on your property purchase extends past 65 years of age, the LTV ratio will be capped. And as long as the loan tenure exceeds 30 years, the LTV will be similarly capped.
If you’re thinking of taking out a home loan at 35, you have to repay your full amount before you turn 65 in order to enjoy a higher LTV ratio. This is why some buyers prefer to buy their second property as soon as they save up enough for one.
4. You Have a Bad Credit Score or Rating
If you have a history of late payments and defaults on loans, you might be flagged as a credit risk. Banks may choose to offer you a lower LTV than the allowable limit, such as 60% instead of 75% for a first bank loan.
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