Complete guide to 2nd property loan to value limits (LTV)

2nd property loan ltv

Table of Contents

Introduction

There are several components to consider when making plans to purchase your second property.

At a high level this includes the following components

  • Deciding on what to do with existing property – should you sell it, retain it or decouple
  • Deciding on what property to purchase as your second investment property
  • Lastly, work out a plan on how you are going to finance your second property

Financing your second property remains an important topic of discussion. When its comes to financing, the MAS stipulated loan to value (LTV) limits is a key determinant that will impact how much bank loan you can take and how much cash you would have to foot upfront.

In many cases, it often make or break your budget for your second property, it will determine whether you can stretch yourself for a bigger three bedder or you would have to settle for a smaller unit.

Quick intro – Decoupling Expertise

Quick introduction, before you decide to commit the next 5mins reading this article.

We are decoupling expertise, a team of specialist realtor that specialise in helping Singapore property owners derive the best strategy to purchase their second investment property without ABSD.

While decoupling property is often the go-to strategy that property owners adopt. We pride ourselves for helping our client explore and evaluate other alternatives that best suit individual circumstances and objectives. 

Drop us a text to explore the best strategy to minimise ABSD on your next property purchase.

What is loan to value limit (LTV) ?

Loan to valuation limit, is one of many cooling measures established by the Singapore government via MAS. It limits the maximum loan quantum HDB or banks can grant you as a percentage of the property price or valuation, whichever is lower.

Together with the total debt servicing ratio (TDSR) for private property and mortgage servicing ratio (MSR) for HDB.

It seeks to limit the amount of leverage Singaporeans utilise on their property.The ultimate goal is to prevent high loan default rates amongst citizens in times of high interest rate and economic recession.

Different LTV limits for private bank loan and HDB loan

As a pretext, it will be helpful to establish that there are different LTV limits set for both private bank loan and HDB loan.

For someone who has no outstanding housing loan, looking to secure a mortgage for his or her first property. You will be looking at a 75% LTV limit for private bank loan and 80% LTV limit for HDB loan.

Given the scope of this topic remains focused on financing our second property, we will not dive deeper into HDB loans.

As HDB loans are only applicable to financing HDB units and HDB’s policies forbids one from owning two HDB. It is inevitable that the second property one owns, will be a private property and can only be financed with a private bank loan.

Hence, it is safe to exclude HDB loans and focus on private bank loans moving forward in our discussion.

Overview of LTV limits set by MAS

Now let’s touch on the different LTV limits set by MAS. For a large part of the discussion in this section, we will be referencing the table below.

Information1st Property Loan2nd Property Loan
Property Value1,000,0001,000,000
LTV limit (%)75%45%
Loan Quantum750,000450,000
Minimum Cash Payment (%) on amount not covered by loan5%25%
Mandatory Cash Requirement12,500137,500
Cash or CPF Requirement237,500412,500

Edit Table

There are two key components that make up the LTV limits table set by MAS.

The first component is the LTV limits, as mentioned in the earlier section, this dictates the maximum loan you can take as a percentage of your property purchase price.

It is important to note that for each tier of LTV limits, tagged to the number of outstanding mortgages you have got, there is an upper limit and a lower limit. We will elaborate more on how this works in the section that follows.

The second component is the minimum cash down payment component. This section stipulates the amount of cash that is mandatory to be paid upfront for the portion not covered by loan.

Key factors determining which LTV limit is applicable to you

There are two key factors that determine the application of the LTV limits and minimum cash down payment set by MAS.

  • No of outstanding property loan – determine which tier of LTV limits is applicable
  • Loan tenure and borrower’s age – determine whether the upper or lower limit is applicable for each tier

Side note on loan tenure and borrower’s age

For each tier of LTV limit, the lower limit will be applicable under two condition

  • when loan tenure exceeds 30 years
  • or when the loan tenure when added to borrowers age exceeds 65 years

Borrower’s age refers to the “income weighted” age of the borrowers, this is best illustrated with an example.

Consider the example of a couple, John and Sally looking to secure a private bank loan.
John is 40 years old, and has a monthly income of $10,000.
Sally is 35 years old, and has a monthly income of $5,000.

The couple’s income weighted age would be calculated as follows.
Income weighted age = 40 x 10,000/(10,000 + 5,000) + 35 x 5,000/(10,000 + 5,000) = 38

LTV limits for the first property loan

Having established how the LTV table works, let’s work on going through the different LTV limits applicable.

Given that this is your first property or you have already paid up your current property loan, you would have no outstanding property loan tagged to your name.

In this case you will be looking at the following LTV limits

  • Upper limit – 75%
  • Lower limit – 55%

Depending on your loan tenure and the income weighted age between you and your spouse, the lower limit will be applicable if loan tenure exceeds 30 years or loan period in addition to borrower’s age exceeds 65 years.

Example for property loan on first property

Consider the example of John and Sally looking to purchase their first property.
Given that this is their first property, they do not hold any outstanding mortgage, they qualify for the following LTV limits of 75% or 55%.

Assuming they decide to take a loan tenure of 27 years, the loan tenure does not exceed 30 years.

Next, referring back to their income weighted age calculated in the section above, adding 27 to the income weighted age of 38, equates to 65 and does not extend beyond 65 years.

They qualify for the upper LTV limit of 75%.

Given the property that they are looking to purchase is valued at $1.0 million.
They will be eligible to take a 75% loan, at a loan quantum of $750,000.

And for the remaining 25%, $250,000 that is not covered by loan, they would have to pay a minimum of 5% cash, which comes up to $12,500.

The remaining $237,500 can be funded by both cash or CPF.

LTV limits for the second property loan

Now let’s consider a different situation for John and Sally. Assuming 5 years have passed, John and Sally are now looking to purchase their second property.

They have not paid up their first property loan, hence still got an outstanding mortgage tagged to their names. In this case, John and Sally will qualify for the following LTV limits

  • Upper limit – 45%
  • Lower limit – 25%

And on top of that they would have to pay a minimum cash payment of 25% for the remaining amount that is not covered by a bank loan.

Assuming they decided to take a 15 year loan. In this case they will qualify for the upper limit of 45% LTV as loan tenure did not exceed 30 years and loan period did not exceed 65 years when added to their income weighted age.

Given the second property is valued at $1.0 million dollars, similar to their first property.

They would be able to take a 45% loan, at a quantum of $450,000.

And for the remaining 55% not covered by loan, they will have to pay a mandatory 25% cash, which will come up to $137,500.

The remaining amount of $412,500 can be funded by both cash cpf.

Differences between a first property loan and a second property loan

As a resultant effect of both LTV limits and minimum cash payment requirement, let’s review the key differences between a first property loan and a second property loan.

Insert table – Difference between first property loan vs second property loan

Referencing the table above, the obvious difference lies in the amount of cash and CPF required to fund the second property.

For a 1st property loan the mandatory cash requirement is only $12,500 and the remaining $237,500 can be funded by cash or cpf.

For the 2nd property loan, due to the increased 25% mandatory cash payment on the portion not covered by loan, the mandatory cash requirement increased to $137,500. And the remaining portion to be funded by cash or cpf increased to $412,500.

Due to the differences in LTV limits and mandatory cash requirement, the cash and CPF required to fund a property increase significantly.

Method to overcome the challenges related with 2nd property LTV limits

Having understood the challenges that comes with LTV limits on the second property, let’s consider some methods that could help mitigate this challenges.

Method #1 – Decoupling or Sell one buy two

Decoupling and Sell one buy two are common methods used by property investors to legally avoid ABSD. Generally both methods work to de-link both you and your spouse’s name from a property that is jointly owned.

Decoupling works via an internal sale and purchase process between you and your spouse, with one party buying out share of the other party and the leaving party to purchase a second property under his or her name.

Aside from avoiding ABSD legally, another benefit of decoupling is that in the end state, both parties will be able to take up separate mortgages independently under their own name.

As a side note, to get accurate calculation of the additional buyer stamp duty you will incur when purchasing your second property, head over to the 2nd property stamp duty calculator.

Under such conditions, MAS will view each party as an individual with no outstanding property loans and the full 75% LTV limit will be applicable. This should elevate the challenge of having to fund a large proportion of the purchase with cash and cpf.

The Sell one buy two method works the same way. The key difference lies in the fact that Sell one buy two, as the name suggest, requires you to sell your current property and eventually purchase two property, separately using you and your spouse name as sole owners.

Similarly, by selling one and buying two units, you will enjoy enhanced financing with a 75% LTV limit, as MAS deemed each loan applicant as applicants with no outstanding property loan.

Method #2 – Pay up outstanding house loan

This method is applicable for two categories of homeowners.

First, in some cases, HDB owners may have purchased their current property at a good entry price, resulting in a relatively lower outstanding loan quantum. In such cases, there is a chance of working towards paying up the entire mortgage.

Once that is done, you would have no outstanding mortgage and will be eligible for the full 75% LTV limit, your loan tenure does not exceed 30 years.

Second, some of you could be business owners or investors that have accumulated a significant pool of cash. In such cases, one consideration could be using the cash to pay down the existing house loan.

This will similarly facilitate the second property purpose with enhanced 75% LTV limit, rather than the reduced 45% LTV limit.

Other factors affecting eligible loan quantum beside LTV limits

In the sections that follows, we will discuss other factors that will affect or limit the loan quantum that you can take, aside from the stipulated LTV limits.

Total Debt Servicing Ratio (TDSR)

Total Debt Servicing Ratio, also known as TDSR is a measure that works alongside Loan to value ratio LTV, implemented by MAS to prevent Singaporeans from over leveraging.

The TDSR limit stipulates that an individual monthly debt payment must not exceed 55 percent of their monthly income.

This debt payment includes monthly mortgage payment, monthly car loan, credit card payment and any other recurring debt payment.

In the case that you only have one outstanding house loan and qualifies for maximum 75% private bank loan financing.

But if the monthly mortgage payment including other debt obligations exceeds 55 percent of your monthly income, you will not be eligible for the maximum 75% loan quantum.

You will have to settle for a lower loan quantum with monthly instalment that fits within 55 percent of your TDSR threshold.

Method to overcome

To overcome financing challenges that are caused by TSDR limits, several measures can be considered.

One would be to lower your monthly debt obligations by cutting down other recurring debt payments. if you incur significant personal loan or credit card bill, you may consider paying up these personal loan and cancelling credit cards that you do not need

The next method would be to review the income used to evaluate TDSR.
The key is to review your current income to look for an avenue to increase the income base used for assessment.

For investors with dividend or existing rental income, you can show proof of ownership for these assets and recurring income source to increase your assessable income.

But note for these variable income sources, a haircut of 70% will be applied on these investment assets and a 30% haircut will be applied on rental income.

For those of you earning income from employment. If time permits, you may consider reapplying to the bank after a pay increment, such that a higher income base is taken into consideration.

For those of you that are self employed. It could be worthwhile to review the income that you have declared. An understatement of your income declaration could lead to a reduce based for income assessed.

Age of property or location of property

This is a challenge encountered when you are considering an older property with remaining lease shorter than 30 years.

For an older property, banks are less willing to offer a loan, as they are deemed to be less satisfactory collaterals because of declining value as the property approaches the tail end of its lease life.

Next, if property is in a sub optimal location like the red light district, similarly the bank will not be willing to process the loan at its full eligible LTV limits.

Method to overcome

Generally, its is often advisable to consider newer property for investment purposes and avoid older property that are experiencing lease decay.

Credit Rating

A bad credit score could also lead to banks refusing to extend the form eligible loan quantum to you. Credit score is affect by a range of factors including how promptly you have been paying up your bills and how much unpaid debt you currently owe.

If you have a unfortunate poor history of late payment and default on loans, the bank may not extend the full 75% loan to you even if LTV limit permits

Method to overcome

It’s best to pay off your debts responsibly and close unused credit lines at least 4 months before your loan application. Making a habit of prompt repayments will also help to secure the highest LTV

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.



FAQ

What is the LTV ratio for a second property ?

The LTV ratio for second properties is 45% or 25%. To determine whether you qualify for the upper limit of 45%, you would need to ensure that loan tenure does not exceed 30 years and loan period, when adding loan tenure to borrower’s age does not exceed 65 years.

How much CPF can I use for the second property ?

To utilise your CPF for your second property, you must first set aside the current prevailing basic retirement sum (BRS). With that you will be able to use any CPF amount within the OA account for the second property purchase. 

How much is the down payment for a second property in Singapore ?

The minimum cash down payment for a second property is 25% on the amount that is not covered by a bank loan. Given that LTV limit for second property is 45%, one would need to fork out a mandatory cash amount of 25% on the 55% that is not covered by loan.

Can I own a 2nd property in Singapore ?

Yes you can. However, depending on individual circumstances, additional buyer stamp duty may apply. And a lower loan to valuation limit of 45% will be applicable as well, reducing the maximum loan quantum that you can take for the second property.

How much is ABSD for second property ?

ABSD rates for second property will be dependent on your citizenship status.
Based on the latest April 2023 ABSD revision, the ABSD rates will be as follows. Singaporean citizen will incur a 20% ABSD on their second property purchase and Singapore PR will incur 30% ABSD on their second property purchase. 

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.