Since the announcement by the Monetary Authority of Singapore (MAS) on 28 June 2013, the market scrambled to find answers to the actual impact and who are affected the most.

Let me provide a few examples to throw some light on the TDSR application.

Example 1: 60% TDSR

1) James Tan draws a monthly income of $10,000 per month and services a car loan of $1,000 and credit card loan of $1,000 at the point of loan application.

2) Mary Chan has an income of $10,000 as well, but 30% of it is variable (eg. commission, bonus).

Both of them are targeting to own their first property with a bank loan.

		(1) James Tan, Fixed income	(2) Mary Chan Fixed + Variable Income
1	Monthly Income	$10,000	$10,000
1a	Fixed Income	$10,000	$7,000
1b	Variable Income	N.A.	$3,000 -$900 (30% haircut) $2,100
1c	Applicable income	$10,000	$9,100
2	TSDR (60%)	$6,000	$5,460
2a	Car Loan	-$1,000	-$1,000
2b	Credit Card	-$1,000	-$1,000
2c	Balance Income for Property Loan	$4,000	$3,460
3	Residential Property Loan @ 3.5% over 25 years	$799,004	$691,138
4	Purchase Price (assume loan amount [3] is 80%)	$998,755	$863,922

Table 1: TDSR Example

With reference to Table 1, both the buyers have $10,000 per month income, but after the application of TDSR (60%) to their respective income profile, the loan amount that they qualify for, has a difference of $107, 866 ($799,004 - $691,138).

And, that will translate into a budget of $998,755 and $863,922 for James and Mary respectively.

If Mary is competing with James to buy a $1,000,000 house, she has to cough up more savings compared to James, as her approved loan stands at only $691,138.

Impact: Income profile (fixed or variable) affects loan amount and eventually the affordability of the buyers. This will cause those making purchases based on variable income (bonuses, allowances etc) to reconsider making this purchase.

Example 2: Income Weighted Average Age

Scenario 1:

John ($20,000 fixed income, 50 years old)
Patricia (22, no income)

Scenario 2:

John ($20,000 fixed income, 50 years old)
Patricia ($5,000 fixed income, 22 year old)

Scenario 1	John Ng (Borrower 1)	Patricia Ng (Borrower 2)
Age	50	22
Income	$20,000	$0
Income-weighted average age	B1 [(Age x Income)/Total income] + B2 [(Age x Income)/Total income] B1 [(50x20,000)/20,000] + B2 [(22 x $0)/20,000] = 50 + 0 = 50 year old.

Scenario 2	John Ng (Borrower 1)	Patricia Ng (Borrower 2)
Age	50	22
Income	$20,000	$5,000
Income-weighted average age	B1 [(Age x Income)/Total income] + B2 [(Age x Income)/Total income] B1 [(50x20,000)/25,000] + B2 [(22 x $5,000)/25,000] = 40 + 4.4 = 44 year old.

Table 2: Income Weighted Average Age

Now, assuming that this is the first property they are owning together and the purchase price is $1,000,000, to qualify for 80% loan as their first loan, their loan tenure and the installments will be:

Scenario 1: $800,000 loan for 15 years max @ 3.5%, installment will be $5,719/month.

Scenario 2: $800,000 loan for 21 years max @ 3.5%, installment will be $4,487/month.

Impact: The era of parent using his child?s name to own a property (with them as guarantors), to get long loan tenure (due to the child?s young age), are probably over now, as the parent will be included as a borrower-owner now.

With the income-weighted average age, it will reflect the payment capability of the co-owners accurately and not simply based on the younger borrower?s profile.

These measures (together with Jan?s cooling measures) will effectively address the following profiles:

1) High-leverage - TDSR 60% implementation affecting affordability as illustrated in example 1

2) "Betting" with current low interest rates - calculations using 3.5% & 4.5% for residential & non-residential loan respectively

3) Variable income earners - hair-cut of 30% (refer to example 1)

4) Elder High income and younger low/no income buyers - income-weighted average age (refer example 2)

5) Remove Existing property owners using a first-time owner (eg child) to buy a property & they become borrowers to avoid ABSD- borrowers are to be owners now, thus they cannot skip the ABSD requirements.

At the end of the day, the message from the government is very clear and can probably be summed up in two words, 'Financial Prudence'.

By living with the changes, however 'painful' it may be, can only bode well for the future, as it will make us resilient even if the interest rates were to rise and/or the economy were to under-perform.