LTV (Loan to Value) Increased by MAS
The restrictions on amount that may be borrowed (LTV) for car loans has been raised since end of May 2016. In each category, below and above the $20,000 value in OMV, the LTV has been raised by 10%.
For vehicles below $20,000 in OMV, the LTV is now up to 70% from the previous 60%. That is, a private buyer (non-company) is able to borrow up to $70,000 for a car valued at $100,000.
Similarly, for vehicles with OMV above $20,000, the LTV is, from end May 2016, at 60% from the previous 50%.
This translates to more buyers being able to afford the down payment for a car as the cash portion is reduced by 10% in each case (whether above or below $20,000 OMV), however, for the same loan repayment period, this will mean higher monthly payments. Buyers will be paying more for the car in terms of interest payments to the bank or finance company as the loan amount is increased. Some of that increased payment will also no doubt come from the increased COE prices.
The purpose of this is to maintain the COE values as MAS stated that “The adjustments follow the sustained moderation in Certificate of Entitlement (COE) premiums”.
What impact has this had on the COE? According to another report, there is no significant increase in the number of customers at the showrooms but four bids after the MAS easing, we see higher COE prices, to the tune of more than 10% increase as of second bid of July 2016. Our guess is that the exisiting crowd is now more willing to bid at higher prices than before because of less cash down payment or that the consideration for many car buyers is mainly the monthly repayment amount, and not so much the full price of the car.
Picture credit: Oneshift.com
Loan Repayment Period Also Extended
Further and perhaps more significantly is that the loan is now no longer restricted to 5 years but to 7 years, which allow for a longer repayment period and hence easier, lower monthly payments.
This will certainly be appreciated by most middle class Singaporeans who have their income from a stable job, they benefit by being able to stretch their loan and having easier monthly payments and being able to afford a car now instead of some time down the road. Some have remarked this may actually be a useful “baby bonus” scheme, encouraging the newly married to have children – certainly, carrying all the bags plus stroller is not a welcome daily chore when squeezing with others on public transport.
So while we see the immediate rise of COE levels in both small and big car categories, we’ll have to wait a little to see if it has any effect on birth rates!