The Financial Network

How High COE Prices can affect your Next Home Loans

Business Times published an interesting article on 1st Jan 2024, High COE prices will not hurt private housing demand, and we want to share a deeper insight on how a Car Purchase can severely affect your future Home Loan Application.

For anyone applying for a home loan in Singapore, you will have to familiarize yourself with the Total Debt Servicing Ratio (TDSR) framework. Introduced on 29 June 2013, the TDSR ensures that borrowers are not over-leveraged for property purchases.

Due to the record high COE levels, new car prices have reached an all-time high. If you are thinking of buying a new car now, and have plans to purchase a property later in the next 1 – 5 years, you might want to reconsider your car purchase due to the impact on the amount of property loan you will be able to qualify.

For example, let’s take a look at John. Assuming he earns $10,000 per month and is looking to buy both a Car and a Property. Based on his income, the current TDSR of 55% allows him to use up to $5,500 for monthly loan/debt repayments.

John is looking to purchase a Category A Toyota Corolla, that cost $160,000 (from SG CarMart on Jan 2024) including COE ($85,000). With a minimum downpayment of 40%, ($64,000), he has to take a loan of $96,000 (60% loan) at 3% interest per year. He will be servicing a monthly installment of $1383 per month over 7 years (84 months).

In order to conform to the TDSR, he is only left with $4117 per month to service a property loan.

Assuming he uses all $4117 for servicing his property’s monthly installment, and assuming a medium-term interest of 4.5% per annum over a 30 year loan, the maximum loan he can take is $812,536.

Now, if he did not buy the car, he has the full $5,500 for servicing his property loan. Assuming the same medium-term interest of 4.5% per annum over a 30 year loan, the maximum loan he can take is $1,085,486. The table below summarizes the difference:

Because of a car loan of $96,000, It reduces the amount of property loan he can qualify by $272,950. This is almost 3 times of the car loan! Consequently, the maximum value of his property will shrink from a $1.44 Million dollar, to $1.08 Million. This might severely affect him from getting his dream home.

If you have plans to get a property, we strongly recommend you consider deferring the car purchase, until you have secured the property. 

Singapore has one of the most efficient and affordable public transport in the world that can get you anywhere. And ride hailing services allow you to get anywhere even quicker. A car may bring convenience to your life, but it may cost you your chance at getting your dream property.

If you are looking to looking to purchase both a car and a property, you will want to consult an expert about it, and we are more than happy to help you with it. You can consult us via the link below.

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8th Jan 2024

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