Banks roll out flexible home loans

Published 27 January 2011
The Straits Times
By Jessica Cheam

They offer up to 60% financing, raising it to 80% later to help those hit by new rules

BANKS here are providing an unprecedented degree of flexibility when granting loans to home buyers who are moving from one home to another.

Banks roll out flexible home loansThey are agreeing to grant loans of up to 60 per cent of the property’s value first, and raising them to 80 per cent later.

The move is helping property upgraders save time and money as they navigate tricky timelines created by new property financing rules first introduced last August.

To recap, the rules stipulate that home owners with an existing home loan can obtain only 70 per cent financing for a second home they wish to buy. The limit was reduced further to 60 per cent this month. The usual loan limit is 80 per cent.

This makes it hard for home buyers, particularly those in the Housing Board market, who simply want to move from one property to another. They now have to prove they have sold their existing flat before qualifying for 80 per cent financing.

The problem is that the proof of sale is a letter of approval from the HDB, which is issued two weeks after what is known as the ‘first appointment’. This appointment, part of the HDB buying process, takes place six to eight weeks from when the deal is struck.

What this means is that an HDB upgrader or downgrader would have to sell his unit first and wait about two months before he can get 80 per cent financing from a bank for his next home. Otherwise, he will get only 60 per cent.

Logistically, he will also have to move out of his existing flat way before he can move into his new one.

This has translated to hundreds of property buyers moving to an interim location. Some even ask for an extension of stay at their existing homes beyond the legal completion of the sale, which is technically illegal under HDB rules.

Most banks here say they are prepared to grant these buyers 60 per cent financing on a new home, and then restructuring the loan to 80 per cent financing when the buyer proves he has sold his home.

HSBC personal financing services head Greg Zeeman said: ‘We are flexible about reviewing loan quantums, as we understand customers sometimes need more time to sell their existing property or decide on the proportion of loan and CPF savings used to finance their new property.’

This is a radical departure from past practice. Previously, once the letter of offer from a bank was accepted by a borrower, the terms could not be changed, said Dennis Wee Group director Chris Koh.

United Overseas Bank (UOB) loans division head Chia Siew Cheng said UOB also offers this flexibility, but added that it also takes into account ‘current market regulations and guidelines, customers with good credit records, stable income and the ability to service the loan’.

Private property owners who are buying and selling their homes in back-to-back transactions also potentially benefit from this increased flexibility. But the problem is less acute for them because in the private property market, home sellers can stipulate a longer period of time for a sale to be completed.

The stamp duty certificate – the proof needed for 80 per cent financing for private property – is also obtained earlier in the sale process.

One home owner looking to move is housewife Koh Lay Hua, 55, who cheered the new flexibility offered by banks. ‘I’m glad some banks are allowing this… I definitely would have to sell my flat to pay for the next one.’

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