Whether it’s an HDB loan or a bank loan, most people will likely finance their house through a loan. However, this doesn’t mean you can borrow as much as you want, as there’s a limit to how much financing we can get. We call this the “Loan-to-Value (LTV) ratio,” a measure implemented by the Singapore government to cap the maximum amount homebuyers can borrow from the Housing & Development Board (HDB) and banks.
The LTV ratio determines the maximum amount of funds you can borrow, which in turn dictates how much of your down payment needs to be paid in cash and/or savings from your CPF Ordinary Account (OA). As long as you are financing your home purchase with a mortgage, the LTV ratio applies, regardless of whether it’s your first, second, or nth time applying for a home loan.
In this guide, we’ll help you understand the concept of the LTV ratio, the principles behind it, and the different LTV ratios for HDB and bank loans.
Table of Contents
Loan-to-Value Ratio (LTV): An Overview
| What is LTV? | Loan-to-Value ratio is the amount you are allowed to borrow to finance your property purchase |
| HDB Loan LTV | Up to 80% of the purchase price/property value |
| Bank Loan LTV | Up to 75% of the purchase price/property value |
| Factors that may affect your LTV | The property’s lease, location, and condition, as well as your age and credit score |
If you own a property or are considering buying one, you may have read about the latest Singapore property cooling measures released in December 2021. Following the announcement of the new cooling measures, the ratio for HDB-granted loans was revised from the previous 85% to 80%.
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What is the Loan-to-Value Ratio (LTV)?
Let’s start with the basics. The Loan-to-Value ratio, or LTV, is the amount you are allowed to borrow to finance your home purchase. For example, an 80% LTV means you can borrow up to 80% of the property’s value (or purchase price, whichever is lower).
The LTV ratio was implemented to prevent borrowers from over-leveraging.
Note that for new property developments (e.g., new HDB flats like BTO projects, new Executive Condominiums, new launch condos), the LTV will always be based on the purchase price.
If you are buying a resale property and paying more than the HDB/bank’s valuation, you must pay the premium, known as Cash Over Valuation (COV), in cash. For example, if you are paying $1.2 million for a property valued at $1 million, your LTV will be calculated based on the $1 million valuation, and you must pay the additional $200,000 COV in cash.
If you’re considering whether to choose an HDB loan or a bank loan, read the related article to understand the differences between the two.
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Loan-to-Value Ratio (LTV) in Singapore
The biggest difference between an HDB loan and a bank loan is the LTV ratio.
HDB Loan LTV (Up to 80%)
HDB Concessionary Loans are essentially HDB housing loans applicable only for the purchase of BTO flats, Sale of Balance Flats (SBF), Re-Offer of Balance Flats (ROF), and resale HDB flats, with a maximum LTV of 80%. This means you can borrow up to 80% of the purchase price/property value.
The down payment can be paid with cash, available savings from your CPF Ordinary Account (OA), or a combination of both. There is no minimum cash amount required.
Since you can only own one HDB flat at any time (and thus use an HDB loan), this is the only LTV you need to be aware of.
Bank Loan LTV (Up to 75%)
If you are applying for a bank loan, the maximum LTV limit for the first loan (i.e., you have no outstanding home loans) is 75%. Of the remaining 25%, 5% must be paid in cash. The other 20% can be paid using a combination of cash or your CPF OA savings.
Before July 2018, the bank loan LTV was 80%. However, it was tightened to 75% during the 2018 property cooling measures. After the 2021 cooling measures were announced, the bank loan LTV remained at 75%.
Why You Might Not Get the Maximum LTV Limit
It’s important to note that HDB/banks are not obligated to offer you the maximum LTV loan. They can choose to approve a lower LTV or reject your application outright. If this happens to you, here are the possible reasons:
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The property’s remaining lease may be too short
Leasehold properties with only 30 to 40 years remaining on the lease may only have an LTV of 60%. The reason is that banks consider properties with a diminishing lease as less desirable collateral, as their market value decreases as the lease nears its end.
You may also find that you cannot use your CPF funds to pay for such properties.
In some special cases, a property is purchased through monthly installments, or the buyer can still get a loan despite the property’s advanced age. This usually occurs when the buyer manages to negotiate a private contract with the seller through a law firm. Alternatively, it could be a special loan offered by a private bank to a wealthy buyer with a good credit score.
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The house’s location and condition are poor
The LTV limit can be significantly reduced depending on the location and condition of the house. Properties located overseas often receive a lower LTV. A house located in a less desirable neighborhood (e.g., near a red-light district) may also result in a lower LTV.
Lenders will also check for litigation related to the property. A dilapidated house or one with significant defects may also lead to a lower LTV.
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Your age and loan tenure are too high
If the loan tenure for your property purchase extends beyond the age of 65, the LTV will be restricted. Furthermore, if the loan tenure exceeds 30 years, the LTV will also be capped.
If you plan to apply for a mortgage at 35, you must repay the entire loan by age 65 to enjoy a higher LTV. This is why some buyers prefer to purchase a second property as soon as they have saved enough money.
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Your credit score or rating is poor
If you have a history of late payments and loan defaults, you may be flagged as a credit risk. The bank may choose to offer you an LTV below the limit, for example, 60% instead of 75% for a first bank loan.
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