On the back of Prime Minister Lawrence Wong’s maiden National Day Rally speech, the government has announced a fresh round of cooling measures – the fourth since December 2021. HDB loan limits were last lowered in the September 2022 cooling measures from 85% to 80%.
This round of cooling measures is a move to cool the red hot HDB resale market, which has seen prices rise significantly since the pandemic. With headlines after headlines of million-dollar transactions in various townships, including the recent 5-room flat at SkyOasis @ Dawson that transacted at an all-time record of $1.73M, the government has moved to further stabilise the market by tightening the loan limit.
Loan-to-Value Limit For HDB Loans Reduced From 80% To 75%
The government noted that earlier cooling measures and increased flat supply had moderated price increases. However, despite these efforts, HDB resale prices still saw a rise of more than 4% in the first half of 2024, attributed to high demand and limited supply.
In a move to address the rising prices and strong demand for HDB resale flats, and to promote prudent borrowing, the LTV limit for HDB loans will be reduced from 80% to 75%. This brings the HDB loan limits in line with the existing mortgage limits set by private financial institutions, which have maintained a 75% LTV limit.
This adjustment means that prospective buyers will be able to borrow only up to 75% of the purchase price or valuation of the property, thereby requiring a higher down payment of 25%.
The new LTV limit will apply to HDB resale applications received from 20 August 2024, and Build-To-Order (BTO) applications from the October 2024 launch onwards. The government has assured that first-time buyers, especially those from lower-income households, will receive substantial housing grants to mitigate the impact of the reduced LTV limit.
While we are not sure if the reduction of the LTV limit will do much to cool the market, we did observe prices of HDB resale flats continue to rise despite the previous LTV reductions from 90% to 85% to 80%. It will be interesting to see how the market will react now that the HDB loan and bank loan LTV limit are aligned. Will this really moderate the prices of resale HDB flats?
Enhanced CPF Housing Grant (EHG) Increased For First-Timers Buying New/Resale Flat
For prospective HDB buyers, the reduction of LTV limit for HDB loan means a higher initial outlay for purchasing a flat, as they will need to cover a greater portion of the property’s cost through cash or CPF savings. To cushion the impact of the reduced LTV limit and alleviate some of the financial pressures on first-time homebuyers, the government has increased the Enhanced CPF Housing Grant (EHG) significantly for the lower-income group.
The EHG will be increased by $40,000 for eligible first-timer families, with the maximum grant increasing from $80,000 to $120,000. For eligible singles, the EHG will be increased by $20,000, with the maximum grant increasing from $60,000 to $80,000.
Depending on the monthly household income, families will receive $5,000 to $40,000 more in grants, and singles will receive $2,500 to $20,000 more. Lower-income households who require more support will receive higher increases in grants.
The increase in EHG is designed to support the lower-income group, which means that first-timer families earning a combined monthly income of more than $8,000 will not see any change to their EHG amounts.
The revised EHG will not apply retrospectively to BTO, Sale of Balance Flats, or Open Booking of Flats that have already been launched before this announcement. For those who have an HDB Flat Eligibility (HFE) letter but have yet to apply for a flat in a sales exercise will not need to apply for a new one, as it will be updated to reflect the revised EHG amount.
Eligible first-time buyers whose transaction of a resale HDB flat is pending completion will also automatically receive the additional grant. For those who have an HFE letter but have yet to submit a resale application will similarly not need to apply for a new one as it will be updated to reflect the new EHG amount accordingly.
Closing Thoughts
The reduction in the LTV limit underscores the government’s ongoing efforts to stabilise the HDB resale market and ensure that home financing remains sustainable and manageable for homebuyers. While this change means that prospective buyers will need to adjust their financial planning and increase their down payments, it is important to remember that support mechanisms are in place to help mitigate these impacts. And as we always propagate, there are still affordable options in the market and million-dollar HDB transactions make up only a small percentage of overall transactions.
We understand that navigating the property market can be challenging, especially with evolving regulations and market conditions. Our mission is to provide you with the most accurate and timely information to help you make informed decisions. Whether you are a first-time buyer, a seasoned investor, or simply exploring your options, our team of experienced consultants is here to guide you through every step of the process.
